Ivanhoé Cambridge, a Canadian real estate company, is a unit of Caisse de dépôt et placement du Québec or CDPQ, which manages Quebec’s public and parapublic pension plans. It became a household name among REIT investors when it acquired a stake in ARA LOGOS Logistics Trust (ALOG) in 2021.
Back in November 2020, when ALOG raised funds for a transformational acquisition from its then sponsor LOGOS, Ivanhoé Cambridge held a stake in two of the funds ALOG was about to acquire. As part of the transaction, ALOG issued $70 million worth of new units to Ivanhoé Cambridge, which in turn became a major unitholder in ALOG. ESR-REIT acquired ALOG in 2022 to form ESR-LOGOS REIT or E-LOG.
“We’ve invested in Singapore, Australia, Indonesia as well as China with LOGOS," says George Agethen, Co-Head of Asia-Pacific of Ivanhoé Cambridge. LOGOS specialises in logistics assets. In 2022 it was acquired by Hong Kong-listed ESR Group.
Traditional and non-traditional real estate
Ivanhoé Cambridge manages around C$70 billion in assets (AUM). According to Agethen, around 10% of its AUM is in Asia, with plans to grow that to 15-16%.
“We are invested in traditional and non-traditional asset classes,” Agethen says in a recent interview. He defines traditional as office, retail, industrial and logistics, and residential. “The residential we invest in globally is residential for rent,” he adds.
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In a report dated Jan 18 based on a recent survey, ANREV (Asian Association for Investors in Non-Listed Real Estate Vehicles) says: “The residential sector has become the most preferred sector for institutional investors with 83% of the respondents indicating they will invest in the sector in 2023. The residential sector moves ahead of the industrial/ logistics sector at second place (76%), followed by the office sector in third (72%). While interest in the industrial/ logistics and office sector remains high, the drop in preference for these sectors may reflect an adjustment in investors' investment preference with a structural shift towards the residential sector.”
“Long term we have a strong conviction around living. We are very positive about industrial and logistics, and over last few years we invested a lot into life sciences, and knowledge-based work places. These are the three sectors we have the highest level of conviction,” Agethen indicates. “There are variations of residential. There's co-living. We just invested in student housing in Australia.
How does Ivanhoé Cambridge think about office space?
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Both retail and institutional investors are having a rethink about office space. The sharp declines in locally listed REITs with US office assets have given rise to market observers wondering if office could be a sunset sector, not unlike retail space a few years ago, at the height of ecommerce.
“Like all institutional investors, we are thinking about what is changing in the way assets are being used in the aftermath of Covid, and how work-from-home (WFH) will affect use of office. Are people coming back to the CBD?” Agethen wonders.
Anecdotal evidence points to actual occupancy at Singapore office buildings at around 50% to 60% compared to committed occupancy rates of well over 90%.
For global cities such as London, those in the US, Sydney or Melbourne where workers have to commute longer distances, Agethen wonders whether there could be a shift in the use of space.
“It’s going to be city dependent access to transport is going to be a big factor. The world is moving to a hybrid work model, in the office for three days a week, so you want to make those productive. Things that do well in physical presence are things like building culture, onboarding people sharing experiences. There is very little learning in Zoom,” Agethen reckons.
In a recent report on Singapore office, JP Morgan says office pre-commitments remain healthy for new office buildings such as Guoco Midtown (75%) and IOI Central Boulevard (40%). In fact in Singapore, CBD 3-5% in 2023 as there are no new office sites after the completion of IOI Central Boulevard.
On the other hand tech office demand has slowed – and this is likely to be a global phenomenon as big techs such as Facebook (now Meta), Amazon, Google and Netflix shed workers. According to press reports, in January (this year) Amazon’s CEO says the company is planning to shed 18,000 jobs. In 4Q2022, Google, Meta and Twitter announced job losses while Netflix started shedding jobs after subscriber losses.
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In Singapore, tech office demand has slowed with Sea looking for a replacement tenant for 200,000 sq ft at Rochester Commons. “A large Chinese tech tenant is no longer looking for additional office space. Another large tech tenant is seeing 30% physical occupancy at its Asia-Pac offices and may look to consolidate its footprint. There is also increasing pushback from MNC and large corporate tenants on rental increases and service charges from landlords,” JP Morgan notes in a Jan 16 report.
Interestingly, co-working has performed well in the last two years on the back of more enterprise tenants resulting in more landlords looking to incorporate co-working space in their properties, either independently or working with co-working operators, JP Morgan observed.
“There is a role for office but we must make it relevant. In the next year or two when companies have had a think, there is a bit of tail risk in terms of how much space companies might want. They might want space reconfigured differently. Those decisions are yet to come,” Agethen says.
Alternative use of space
“In the alternative space we invest in pretty interesting things that are real estate ancillary, whether that's cold storage, data centres, student living as an alternative offset the mainstream residential. We’ve invested in disability housing in Australia,” Agethen says referring to Ivanhoé Cambridge’s investment in a Macquarie Asset Management managed platform.
The platform invests in Specialist Disability Accommodation (SDA) assets. The Australian Federal government has announced support initiatives, enabling private sector funding to accelerate the growth of SDA.
According to Ivanhoé Cambridge’s announcement, Australia faces a shortage of SDA housing. The Macquarie platform plans to build new SDA. The strategy operates within Australia’s National Disability Insurance Scheme (NDIS”, which seeks to support the provision of purpose-built dwellings for vulnerable Australians.
Other alternative space Ivanhoé Cambridge has invested in is movie studios. “We invested in movie studios in the UK, where they make all the James Bond movies. The likes of Netflix, Disney, Amazon Prime rent space for studios. As long-term investing in real estate, we have to diversify that exposure as well. We try to keep a reasonable balance based on where we think, you know, trends are heading, or markets are heading. And then over here in Asia, over the last seven years or so we've been just building that resilience and diversification, adding sectors, adding countries to the global portfolio.”