Agenda item

The Committee considered a report of the Director of Corporate Resources which provided information on the Leicestershire Pension Fund (Fund) direct property investments and the performance of the UK direct property fund and market outlook. A copy of the report marked ‘Agenda Item 6’ is filed with these minutes.

The Chairman welcomed to the meeting Mr Sam Brice and Ms. Andrea White from DTZ International (DTZ) who supplemented the report with a presentation which is also filed with these minutes.

Arising from the report and presentation the following points arose:

i.          It was noted that whilst the Fund had allocated money to DTZ, no purchases had been made to date due to limited available investment products. However, DTZ stated it had upcoming opportunities and had taken the approach to contact other landlords directly to see if they were looking to down weight their real estate exposure.

ii.          A Member asked if there was a danger that asset values would be inflated with more money chasing fewer opportunities, and if so, how it affected investment returns. DTZ explained that, although there were less products, there were also fewer buyers, mainly due to higher inflation and consequential impacts on the economy over the past 12 months. Some investors were waiting for the economy to stabilise before investing. However, DTZ explained that during Quarter 4, the market had gone through a period of repricing, which had made the market more attractive to investors, with resilient sector (Industrial and Retail) prices having held steady with no significant increases. It was further anticipated that there would be some capital appreciation over the next four years in those sectors.

iii.          A Member questioned if additional costs to reach net zero in the property market by 2040 had been taken into account when acquiring property. DTZ confirmed that reaching Net Zero was a key focus both in terms of acquisitions and also with assets already held within the wider business. Members noted that DTZ had undertaken Net Zero audits across the portfolio to identify what costs would be incurred to transition an asset to Net Zero. It was further noted that there were Asset Improvement Plans which incorporated a range of different aspects, including ESG (Environmental, Social and Governance) and Net Zero to ensure DTZ were taking appropriate actions. DTZ confirmed it also had robust processes to ensure correct pricing when acquiring assets, and that assets were reviewed on an annual basis to forecast returns.

iv.          Members were informed that the biggest area affected in terms of change in its structure was the office market. Forecast charts did reflect a fall in the value of the market, reflecting a lower tenant base, and increased costs in building improvements to meet modern ESG standards. Tenants would also go through various phases of different business models, and the key would be to focus on assets that were flexible enough to meet a tenant’s changing occupational requirements.

v.          A Member referred to the funds allocated but not yet committed in the sector and, with falling capital values, questioned the correct timing of the purchase of assets in the current market. DTZ acknowledged it was always very difficult to time the market. They were positive with the resilient sectors but were cautious to price assets on their own merits, looking long-term over the five-year period to deliver returns.

RESOLVED:

That the report and presentation from DTZ International on Leicestershire Pension Fund direct property investments and the performance of the UK direct property funding and market outlook be noted.

(Mr Sam Brice and Ms. Andrea White left the meeting at this point).