18 september 2019 | 3 min.

Research tools for creating perpetual value

With very low interest rates, real estate is in a sweet spot. Investors’ search for yields continues and has intensified with the latest fall in interest rates. This intensity is being felt in real estate pricing, however. Yields have been compressing for years and favourable yield gaps will swiftly turn into reasonable or unfavourable pricing. We therefore expect rental growth to drive returns for the forthcoming years. With this in mind, the selection of (sub)markets and assets becomes more critical: which investment has strong enough fundamentals to endure economic headwinds?

In the remainder of this article we will explain our approach to ensuring perpetual value.

Our approach: Market ID

In our acquisition and hold-sell processes, we use two state-of-the-art tools to assign a market ID to every asset of interest and every asset in our portfolio. We differentiate between market and asset tooling.

Figuur 1 Tools For Perpetual Value

Market score

For the market score, we rank the long-term fundamentals of municipalities. We collect, weigh and score demographic, economic and real estate investment market indicators. Where they are available, we use forecasts and we incorporate current relevant indicators such as the affordability of housing. At this stage we develop an initial idea of where to find resilient real estate returns. In this picture, the blue colours represent a high residential market score. Grey colours represent lower scores.

Figuur 2 Tools For Perpetual Value

Assets scores

Asset assessment is just as important as (sub)market analysis. For our asset score, we weight and rank the characteristics of a specific asset. For our high street asset score, we value unit usability, tenant stability, footfall and accessibility.

For every asset we have ready-made scores and factsheets. Dark blue assets are equivalent to high asset scores.

Figuur 3 tools for perpetual value

Start of discussion

Although the availability of data and know-how is progressing rapidly, real estate remains a class of its own. We see the Market ID score as an efficient starting point for a discussion. However, you can only evaluate the total perpetual value of assets by discussing qualitative aspects like the appeal of the building, its history and the quality of public space with several real estate experts.

Auteur(s)

Vinoo Khandekar

Vinoo Khandekar

hoofd Research & Intelligence

Vinoo is verantwoordelijk voor de afdeling Research & Intelligence en daarnaast werkzaam als researcher voor het ASR Dutch Prime Retail Fund.

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