Articles

The changing face of property management:
Until a few years ago, the management of a property portfolio was relatively straightforward for charities. It was simple enough to collect the rent and manage the properties. However, with the underlying economic conditions, heightened inflation, rising interest rates and increased cost of living pressures, property looks a very different prospect. Alongside increasing complexities of day-to-day property management, rising maintenance costs and increased environmental regulation.

Given the growing divergence between sector performance, real estate portfolios need to align with the secular trends of not only today, but the future and requires a considered approach to sector allocation. This alongside the increasing regulation around EPCs and the challenges of achieving net zero, means many charities must implement structured and costed plans for their properties in order to avoid the potential for stranded assets.
The structural shift within sectors is most noticeable in the office sector. As working patterns adjust to the new hybrid environment, tenants are increasingly choosing prime, Grade A office space with high quality amenities and strong ESG credentials to encourage employees back in. Resulting in an increasing polarisation between Grade A and secondary office assets. These changing work patterns are leading to reducing lease lengths and an increased demand for serviced office space, as tenants demand more flexibility. It’s this flexibility which is resulting in property ownership becoming increasingly operational.

Operational real estate:
As outlined above, the structural changes happening within the market have meant that in order to successfully own and manage property, you need to have the technical knowledge of the market, alongside the hands on, operational capabilities to meet the needs of the modern occupier.
Given the increased operational nature of owning real estate, the active management of a portfolio is essential in order to deliver investment performance through growing rents and delivering a reliable and sustainable income.
What are the long-term benefits for investing in real estate?
Property has been an important asset class for many charities within their investment portfolios over the years, providing diversification, sustainable income and reduced long term volatility vs equities which invariably makes-up the largest portion of any investment portfolio. While these benefits remain for property investors, charities need to consider the best way to gain access to the asset class. Whether it is through holding their own direct property portfolio, and managing the challenges outlined above or investing indirectly by owning units in a pooled property fund, run by a specialist real estate manager.

What solutions are available?
Swiss Life Asset Managers UK, as a specialist real estate manager can deliver a number of solutions to these challenges by providing the real estate expertise not available within most charities.

• Strategic management on a segregated basis, including the re-positioning of direct property portfolios, offering the management expertise in house.
• Providing advice and guidance on transitioning from a direct property portfolio to an indirect exposure through a professionally managed pooled property investment Fund, removing the day-to-day management but retaining exposure to the asset class

We believe these two options can provide charities and endowments owning direct property the optimal solution for their real estate investments. In spring 2023 Swiss Life Asset Managers UK (formerly Mayfair Capital) was mandated to transition a significant endowment’s existing portfolio into a hybrid solution of both direct property ownership and diversification through an indirect specialist charity pooled property fund. Barts Charity appoints Mayfair Capital as Property Adviser, March 2023 | Property Income Trust for Charities (pitch-fund.co.uk)

In conclusion:
It is clear the coming years will be a challenging time for charities invested in real estate. The changes in occupier needs, shifting work habits and the impact on the office sector, the increased regulation around environmental standards and the growth in operational real estate are just some of the factors influencing the structural changes within the market.

There is no “one way” of dealing with these challenges - It is inevitable that strategies will have to be reviewed and difficult decisions made, but taking professional advice is key to considering the optimal route and delivering the best solutions to these challenges.
Strategic Property Management Service for Charities and Endowments | Property Income Trust for Charities (pitch-fund.co.uk)

Contact:

James Lloyd: Head of Charities & Endowments :[email protected] 0207 291 6664

Charlotte Cook: Investment Associate, Charities & Endowments: [email protected] 0207 291 6667