Thematic House View
When forecasting real estate performance, as well as making top-down allocation decisions, many asset managers consider two main factors – geography and asset type. However, a number of additional, more thematic factors can differentiate returns and bring another important dimension to top-down allocation. In theory, thematic factors are infinite but they can include the dominance of the asset (size), lease length, covenant strength, asset quality (flexibility/specification/sustainability) and location. While defining these factors can divide opinion on the classification of an asset, what is clear is that at different points in the cycle they have a material impact on performance. In this paper, we use the UK commercial real estate market to assess how these factors can, if harnessed properly, help to deliver enhanced performance and improve decision making.