More about the portfolio

As at 30 September 2024

A disciplined investment approach

We recognise the long-term returns from commercial real estate are driven principally by good quality income and income growth.

Our investment approach combines three principal factors:

  1. Integrated research to identify those regions, sectors and investment themes which are expected generate attractive returns
  2. A detailed business plan-led approach which aims to unlock value from each portfolio asset
  3. A sustainable approach which is beneficial to our tenants, local communities, and thereby portfolio performance.




Research
Research is focused on cyclical and structural trends in order to determine market strategy and exploit mispricing. Occupier demand is increasingly concentrated in ‘Winning Cities and Regions’ that offer a competitive advantage in terms of higher levels of Gross Domestic Product (‘GDP’) and should, therefore, generate higher real estate returns.

Thematic investment
Thematic investment driven by macro-trends but focused on segments where a hospitality mindset, coupled with local operational asset management expertise, can deliver impact, sustainability and alpha. 

  • Operational – hospitality mindset, business understanding, flexibility 

  • Flexibility – flexible leases, shorter-term, turnover rents 

  • Rise of e-commerce and changing consumption – last mile industrial/warehousing close to major cities

Winning Cities and Regions
Occupier demand is increasingly concentrated in ‘Winning Cities and Regions’, those that offer a competitive advantage in terms of higher levels of GDP, employment and population growth; differentiated local economies with higher value industries; well-developed infrastructure; and places where people want to live and work. Winning Cities and Regions will change over time and investments will be made in other locations where we see higher rates of future growth that could lead to mispricing opportunities. 

  • Differentiated economy: Globally-facing, financial services, TMT hubs, life sciences and value add manufacturing.

  • Infrastructure improvements: Transport, distribution, energy and technology. 

  • Employment growth: High-value new jobs, wealth effect and population growth. 

  • Environment: Live and work, tourism and amenities, universities, cathedral cities, dominant retail and leisure.

Business plan-led approach
Our starting point is our annual fund strategy statement which defines our activities over the coming three to five years and identifies key objectives at both fund and asset level. Our aim is to deliver incremental outperformance year-on-year. 
We aim to generate the majority of the target outperformance through good stock selection and active asset management. Each asset is managed in accordance with its individual business plan. The business plan is the focal point for identifying and implementing the active management strategies that will maximise returns.

DIY and Grocery (17%)

The company’s retail exposures consists of two urban retail assets (grocery and DIY) located in the growth cities of Berlin and Frankfurt. The focus is on assets in the ‘convenience’ and ‘experience’ sectors. Both assets are in strong residential growth areas, with our largest exposure (Berlin) comprising four hectares of land with multiple alternative use potential.

Industrial (50%)

The Company’s investments comprise both logistics and industrial warehousing, leased to a variety of tenants in manufacturing, services and third-party logistics. All assets are in established warehouse locations such as Venray, Houten and Utrecht in Netherlands and Rumilly, Nantes and Rennes in France which benefit from supply constraints and rental growth prospects.

Office (33%)

The Company focuses on sub-markets that are: supply constrained; benefiting from competing demands for uses; and where rents are modest and sustainable. Our office exposure is in established sub-markets of Paris, Hamburg and Stuttgart. We continue to evaluate the changing office requirements which include a shift towards home working and a heightened Environmental, Social and Governance (‘ESG’) focus.

Other (9%)

The Company owns two assets which are classified as belonging to alternative sectors. This includes a mixed-use data centre and office building located in Apeldoorn, one hour from Amsterdam. The asset provides stable income let to a strong covenant and options to redevelop for an alternative use. The second asset comprises a car showroom in Cannes, located in a strong care dealership agglomeration that further benefits from alternate use to medium density residential.

Cash (11%)

‎Percentage of total real estate portfolio value as at 30 September 2024
Source: Schroders, December 2024

Featured Assets

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Apeldoorn, The Netherlands

‎ Asset management strategy

Despite lease expiry in December 2026, our focus is on working with KPN to explore longer term occupation requirements. Covid-19 is impacting sectors in different ways with demand for data centres increasing whilst the optimum long-term use of offices is being scrutinised.

Rumilly, France

Asset management strategy

  • Core logistics investment located in Rumilly (Haute-Savoie) in the French Alps and one of the fastest growing regions of France
  • Improving logistics location, driven by its proximity to Geneva (via A41 motorway and rail) and affordability with rents approximately a third of prime logistic rents in Geneva
  • The asset comprises 16,700 sqm (97% warehouse, 3% office) with a favourable 1:740 sqm loading dock provision and sufficient truck manoeuvrability and parking spaces
  • ESG initiatives undertaken include LED lighting upgrade, ongoing waste performance monitoring and automatic meter readings for energy and water
  • Built-to-suit asset enjoying excellent tenancy history, fully let to Cereal Partners France (Nestlé subsidiary) for the past 24 years given its strategic location to the neighbouring Nestlé cereal manufacturing plant
  • Scarcity of land in the region, meaning strong interest from occupiers and distributors which has spurred additional construction and rental growth
  • Value has grown from an initial purchase price in Q3 2018 of €8.5 million to €9.8 million as at Q3 2023.

Berlin, Germany

Asset management strategy

  • Freehold 16,800 sqm DIY retail scheme comprising a DIY unit, a garden centre and a trade counter fully let to Hornbach
  • Acquired in March 2016 for a purchase price of €24.3 million, latest valuation at Q3 2023 of €28.6 million
  • Strong urban location 10 km south of Berlin City Centre in Mariendorf with surrounding medium density residential and above average population growth expected
  • Large site area of over 4 hectares in a supply constrained location providing an opportunity to explore alternative use subject to ongoing discussions with the tenant and local authority
  • Management recently inspected a neighbouring mixed-use residential/retail scheme. Longer term aspirations are to replicate
  • Preliminary discussions with the municipality have commenced. However, timing will be dictated by our ability to get vacant possession

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Fund Risk Considerations

Schroder European Real Estate Investment Trust plc

Credit risk

A decline in the financial health of an issuer could cause the value of its bonds, loans or other debt instruments to fall or become worthless.

Currency risk

The fund may lose value as a result of movements in foreign exchange rates.

Interest rate risk

The fund may lose value as a direct result of interest rate changes.

Liquidity risk

The fund is investing in illiquid instruments. Illiquidity increases the risks that the fund will be unable to sell its holdings in a timely manner in order to meet his financial obligations at a given point in time. It may also mean that there could be delays in investing committed capital into the asset class.

Market risk

The value of investments can go up and down and an investor may not get back the amount initially invested.

Operational risk

Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the fund.

Performance Risk

Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.

Property development risk

The Fund may invest in property development which may be subject to risks including, risks relating to planning and other regulatory approvals, the cost and timely completion of construction, general market and letting risk, and the availability of both construction and permanent financing on favourable terms.

Real estate and property risk

Real estate investments are subject to a variety of risk conditions such as economic conditions, changes in laws (e.g. environmental and zoning) and other influences on the market.

Concentration risk

The company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down, which may adversely impact the performance of the company.

Gearing risk

The company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in that investment could be lost, which would result in losses to the fund.