a.s.r. real estate

Investment resilience and perpetual value in times of crisis

09-10-2020

In this article, we explain why our real estate platform and sector funds are so resilient during times of crisis and how we intend to maintain that resilience in the future.

Before the COVID-19 pandemic, shopping in city centres, dancing in nightclubs, and driving to work every day were things we all took for granted. Nowadays, we mostly stay at home, having adopted an increasingly digital way of living and working. And just as the COVID-19 pandemic has heavily impacted our normal lives, so has its impact been felt in the various real estate sectors.

The a.s.r. real estate platform proved its resilience
a.s.r. real estate has been investing in real estate for more than 125 years and manages investments for institutional investors. Long-term thinking is in our DNA, with a strong focus on quality. This is based on our belief that a quality investment will retain its value in times of stress. We invest in sustainable regions, cities and buildings, and we actively encourage sustainable land use.

Due to the diversified real estate portfolio, our real estate platform (direct residential, retail, office, science parks and farmland investments in the Netherlands and indirect non-listed European real estate) has performed well in recent years and shows resilience in times of crisis. For example, while the Dutch real estate benchmark depreciated by -19% during the Global Financial Crisis (2007 -2014), the a.s.r. real estate portfolio showed a continuous value increase of 1.2% over the same period.

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Figure 1: asset value index a.s.r. real estate portfolio versus MSCI-NL property benchmark

Focused core investment strategies and asset selection have proven highly successful and offer investors a safe haven in challenging markets. During the global financial crisis and years following (2007-2014), the indirect return of a.s.r.’s office portfolio outperformed the benchmark by an annual average of 75 bps. Even more notable was our retail portfolio, which outperformed the benchmark by an annual average of 250 bps during devaluation years (2008-2009, 2012-2016 and 2019). The residential portfolio also performed well in the past years, matching its relevant benchmark. The residential sector showed a very strong capital growth compared to other real estate sectors. Meanwhile, we continue to work on making it an even more sustainable portfolio. This is also an important focus for our balanced core international portfolio that invests in best in class non-listed European real estate funds. This strategy diversifies the a.s.r. real estate exposure and supports its stability over the economic and real estate cycle. The farmland portfolio provides a stable and secure income over the last years and has proven to be an unique and stabilising factor in a.s.r.’s asset allocation. Especially during economic downturns the asset class proved to be more resilient and less volatile than other real assets.

The previous global financial crisis is still etched in our memories. A focus on core investments helped a.s.r. real estate remain stable during that crisis. We finetuned our core investment strategy and were therefore well prepared for the current crisis. As a general rule, we would rather stay on track with our long-term strategies than allow ourselves to be tempted by more opportunistic transactions.

Resilient investment strategies and Covid-19
Investments based on refined, solid investment strategies have proven to be resilient during times of crisis. a.s.r. real estate has developed appropriate strategies for each sector fund, based on each sector’s long-term background, our research tools and knowledge of real estate markets.

ASR Dutch Core Residential Fund

  • Investment strategy: Our core focus is on investing in sustainable, high-quality apartments and single-family houses—particularly in the mid-priced rental segment—in the strongest economic and demographic regions and cities in the Netherlands.
  • Our view: In the residential sector, the impact of COVID-19 is limited by strong market fundamentals. Consumers prefer to rent rather than buy in uncertain times, and affordable housing is seen as especially attractive.

ASR Dutch Mobility Office Fund

  • Investment strategy: The fund’s strategy is aimed at investing in high-quality offices in the immediate vicinity of mobility hubs: large train and metro stations in the Netherlands and Schiphol. These locations offer the right mixture of local facilities and public transport functions, as well as a large variety of amenities.
  • Our view: COVID-19 has accelerated current trends, such as distributed working and concern for employee health. If employees travel to an office, they want a multifunctional, accessible and sustainable workspace with a variety of amenities in the immediate vicinity.

ASR Dutch Prime Retail Fund

  • Investment strategy: With prime assets and stable diversification, the Fund’s focus is on the most future-proof retail areas in the country. Around 95% of the Fund’s high street retail assets in the portfolio qualify as prime. High street retail compromises 69% of the total value, while convenience retail (25%) and non-retail (6%) assets complete the portfolio.
  • Our view: COVID-19 will hasten the retail transition and accelerate the transformation of high street retail outlets into other usages in secondary locations and outside the top retail cities. The value gap between high street prime and non-prime will widen. Convenience retail will continue to be resilient for the foreseeable future.

ASR Dutch Science Park Fund

  • Investment strategy: a.s.r. real estate’s newest fund invests in commercial real estate on Dutch science parks. The strategy targets locations which are projected to benefit most from the continuing shift towards a more knowledge-based economy. By measuring the attractiveness of these locations for prospective tenants, the Fund’s bespoke research tooling identifies locations with the most attractive risk-return profiles. These will be used to develop a core strategy for this emerging asset class.
  • Our view: The impact of COVID-19 on knowledge-driven companies has been limited, especially in the tech and biotech sectors. The strong fundamentals of the science sector will continue to drive the need for commercial space at the locations which the Fund targets.

Non-listed European real estate portfolio

  • Investment strategy: This a.s.r. strategy invests in the best in class core European real estate funds with exposure to the high-quality assets in offices, retail, residential and logistics based in the most dominant European cities and logistic hubs. Due to the focus on sustainable assets on prime locations the program can deliver attractive returns against a low risk profile.
  • Our view: COVID-19 confirms the added value of a well-spread portfolio investing in the strongest and most resilient European real estate markets. While the accelerated transition of retail is evident, the European residential and logistic investments show to have strong and sustainable fundamentals in challenging times. In the office sector the prime locations will show to be more stable than the rest of the market.

Farmland portfolio

  • Investment strategy: Our strategy is focused on a diversified farmland portfolio with the aim to create ‘perpetual value’ through responsible stewardship. By engaging our investors, farmers and ourselves in applying the principles of Climate-Smart Agriculture we are able to pass on this valuable asset in a better condition to our next generation farmers and provide a stable and secure income.
  • Our view: uncertainty due to COVID-19 influences the behavior of entrepreneurs in the agricultural sector. Large scale farmers will use this period to enlarge and diversify their business model as small farmers will use the uncertainty to investigate the opportunities to end their business. In close cooperation with farmers we will enhance our Climate-Smart Agriculture strategy.

The way forward: increased perpetual value
a.s.r. real estate welcomes the future with confidence, given our solid, sustainable real estate platform and refined investment strategies.

In the coming years, we will closely monitor our strategies, invest in innovation, and further develop our data-driven approach towards real estate investments. Solid data-science techniques, such as machine learning, geographic information systems, and business intelligence tooling, will be used to sharpen our strategies. This will enable us to keep delivering perpetual value to both our investors and society.

For more information on the a.s.r. real estate funds, please contact Vinoo Khandekar or Luc Joosten.

Vinoo Khandekar
manager research
a.s.r real estate
M: +31 (0)6 23 90 13 75
E: vinoo.khandekar@asr.nl

Luc Joosten
head of Fund Management
a.s.r. real estate
M: +31 (0)6 83 64 81 85
E: luc.joosten@asr.nl

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