Introduction
Research and forecasting of property markets is a fundamental element of the Henderson Property Funds Management investment process. As such we have a substantial research team that is fully integrated into the business, from top down analysis of markets and economies to forecasting expected yields and rental growth at the building level. The team is constantly looking for new innovations in the analysis of markets in the UK and internationally, to ensure that Henderson remains a market leading investor in real estate for its funds and clients. Included in the process, we currently produce quarterly market forecasts for all key European property markets, including some 600 local markets in the UK and 200 in Continental Europe.
The Role of Property Research
In recent years the property market has seen a wave of innovations that have helped boost liquidity and transparency, this has coincided with a massive flow of funds into the market and moved property towards being a mainstream asset class. The rise of the global REIT market, an emerging property derivative market and the continued expansion of the coverage of property market performance by companies such as IPD have all contributed.
Property's move from the shadows into the mainstream means that the role of research within fund management is changing, and given the increasing prevalence of cross border investing is more important than ever. The increasing transparency of the market means that research can probe ever deeper into the workings of the market, this can involve analysis that looks into more obscure locations than previously possible or sectors that had not previously been explored.
Despite recent advances, inefficiencies still exist in the property market. Property performance at the aggregate level is potentially more predictable than in other asset classes but it is only through in depth local analysis that inefficiencies at the individual asset level can be exposed.
As a result, Henderson employs research professionals who are technical, country, sector and local market specialists. Research is involved at every stage of the investment process from fund strategy, through targeting local markets and individual asset appraisal to performance measurement reporting and analysis. Henderson's research teams are also involved in the final approval of individual asset buy/hold/sell decisions and provide fundamental innovative research to lead the development of new products.
Each regional or sectoral research team employs both a top down and bottom up approach using all the quantitative and qualitative information pertinent to the investment decision making process. In order to harness all the relevant information, members of the research teams specialise in particular disciplines from economics, investment analysis and econometrics through to economic geography and planning and will consult and commission research from external professionals should a particular decision require it.
Each team explicitly forecasts, every quarter, the countries and sectors for which they are responsible using inputs from the in-house Global Economics and Strategy team to inform strategic and tactical decision making through an assessment of market prospects and current market pricing.
Local markets are assessed in the same framework and forecasts from this stage of the research process are explicitly linked through to asset appraisals. The research team also assesses and monitors forecast accuracy on a regular basis and can demonstrate an impressive track record for the markets in which they operate. Coverage has been expanded to encompass the broader range of opportunities now available to investors, both in terms of location and in terms of more detailed sectoral analysis.
Performance measurement, reporting and analysis are undertaken on a regular basis to inform fund managers and the investment teams of the value of their decisions. In this way, appraisal of the effectiveness of current strategies and tactics can be assessed and re-stated, if necessary.