Schroder European Real Estate Investment Trust

"We focus on locations within European growth cities that will benefit from rapid urbanisation in order to deliver long term sustainable income and value."  

Mega Themes

Long-term performance of real estate assets will be driven by structural changes or 'mega themes' arising from demographic, technological, environmental and other factors that are outside the normal real estate market cycle. These help identify Winning Cities.


Rapid urbanisation


40 global cities by 2025 with 10 million + populations.1 The focus on Winning Cities with faster growth in jobs and locations where people wish to live and work.




We are living longer and moving closer to cities.2




The locations which attract the TMT sector and demand for e-commerce will capture high growth.3


Resources and infrastructure


Global demand for power and infrastructure is increasing.4


Shift West to East

shift West to East

The shift of economic growth from West to East is changing demand. The focus is on locations that attract businesses which benefit from increasing demand from the East, such as luxury goods and education. 5


Impact Investing

shift West to East

Positively impacting the environment, society, and investment returns.

Source: 1: IDC (2017), 2: International Energy Agency (2017), 3: Oxford Economics (2018), 4: United Nations (2016), 5: World Bank (2017).

Q2 2019 Commentary

Market summary

Economic growth forecasts have been revised down over the last 3–6 months and Schroders forecasts now that Eurozone economic growth will slow from 1.8% in 2018 to 1.25–1.5% p.a. through 2019–2020. While short-term growth was impacted by political turmoil and uncertainty over the new Italian government, Brexit and the protests in France, the main weak spot is manufacturing, reflecting slower growth in China and the US. Particularly Germany, with its big exposure to manufacturing, has seen forecasts revised down sharply. By contrast, consumer spending remains stable, supported by very healthy labour markets, higher pay awards, low inflation of around 1.5% p.a. and some softening in austerity measures combined with higher public sector spending. The benign outlook for inflation means that the European Central Bank is likely to wait until 2020 before raising the refinancing interest rate. The main upside risk is that consumer spending is stronger than forecast. The main downside risks are continued lack of clarity on Brexit, an escalation of the US-China trade dispute and the threat of US‑imposed tariffs on EU exports.

Sector Update


Most major European cities experienced a rise in office rents over the year to 31 March 2019. This widespread upswing reflects the sustained increase in employment, particularly in technology and professional services over the last five years and low volumes of completions. As a result, vacancy rates in Amsterdam, Brussels, the major German cities, Paris and Stockholm are at their lowest level in 15 years and there is a particular shortage of new and modern office space suitable for new workplace configurations. At the same time, there remains a low level of new development. Consequently, while rental growth will probably start to slow, we expect the increase in office rents to continue through 2019–2020.


The industrial and logistics sector is also seeing strong demand and rising rents, driven by the cyclical improvement in the economy and by the structural growth in online retailing. However, the increase in rents is less ubiquitous than in the office market and big cities (e.g. Berlin, Madrid, Munich, Paris) are generally seeing faster rental growth than ports or other distribution hubs. The difference is largely due to the greater availability of land for new building in the main logistics hubs of Benelux and the Ruhr, but development in big cities is also being held back by low unemployment and a shortage of warehouse staff. This is encouraging greater automation and, combined with the transition to electric vehicles, means that warehouses increasingly need to have a good power supply.


Despite the growth in consumer spending, demand for retail space in continental Europe remains in structural decline. The key challenge is the switch to online retail. The market is also being disrupted by discount retailers who are taking market share from mid-market retailers and are unwilling to pay the same level of rent. The average vacancy rate in shopping centres has risen to 8% and shopping centre rents fell in most countries in 2018 (source: PMA). We believe that the most defensive retail types will be shops in big city centres and tourist destinations, convenience stores, mid-sized supermarkets and out-of-town retail warehouses selling bulky goods. We expect that department stores, shopping centres with a heavy reliance on clothing and footwear, shops in smaller cities and hypermarkets will suffer a sustained fall in rents.


The strategy over the period has focused on the following key objectives:

  • Maintaining the annualised target dividend yield of 5.5%.
  • Further strengthening of the portfolio’s diversification qualities from a city, sector and income perspective.
  • Achieving full investment through targeting Winning Cities and regions that experience higher levels of GDP, employment and population growth than national averages.
  • Execute asset management initiatives to improve both the long-term income profile and individual asset value.
  • Manage portfolio risk in order to enhance the portfolio’s defensive qualities.

Progress has been made in executing the strategy and activity over the period which has delivered the following:

  • Acquisition of an industrial property in Rennes, France (comprising two neighbouring warehouses) increasing the Company’s industrial warehousing weighting to 19% and improving the portfolio diversification from a sector, tenancy, age profile and unexpired lease term perspective.
  • Agreeing conditional heads of terms (post-period end) with Alten regarding their longer term occupation in the Company’s largest asset in Boulogne Billancourt, Paris and refurbishment of this asset.
  • Securing new lease agreements with two tenants over c.40% of the Hamburg space, achieved at rents above business plan and in detailed discussions for a further two floors.
  • 100% of the portfolio now located in higher growth cities and regions.
  • Concluded three new leases and regears, generating a 9% increase in annualised income relative to previous rent at a weighted lease term of three years.
  • Completion of a €0.8 million asset management initiative centred on improving the vibrancy, lighting, wayfaring and signage for the Metromar shopping centre, Seville.
  • Maintained the high occupancy level of 96%, with an average portfolio unexpired lease term of 6.5 years and 5.1 years to break.
  • A prudent loan to value of 28%.

Our focus continues to be on driving income and total returns for the existing portfolio, managing risks and continuing to seek new investments to accelerate income growth. The specific next steps therefore include:

  1. Conclusion of key asset management initiatives:
    1. Advancing the formal lease precommitment for the office investment in Boulogne-Billancourt, Paris and progression of the redevelopment licences, construction contract and programme.
    2. Leasing the remaining c.60% of vacant space in Hamburg.
    3. The opening of leisure specialist Urban Planet in Metromar, Seville which is expected in Q3 2019, which will add a further point of difference to the scheme, enhancing its appeal in a competitive local market.
  2. Continue to actively engage with existing shareholders and potential new investors.
  3. Consider opportunities to grow the Group, taking a disciplined approach in a way that will improve long-term shareholder returns.

Discrete yearly performance (%)

  Q1/2018 - Q1/2019 Q1/2017 - Q1/2018 Q1/2016 - Q1/2017 Q1/2015 - Q1/20164 Q1/2014 - Q1/20154
Share price total return (GBP)1 -3.1 7.1 3.3 - -
NAV total return (Euro)2 3.1 9.8 2.1 - -
NAV total return (converted to GBP)3 1.2 13.4 9.4 - -

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.

1 Source: Schroders, Datastream, bid to bid price with net income reinvested in GBP.
2 Source: Schroders, NAV to NAV (per share) plus dividends paid.
3 Source: Schroders, NAV to NAV (per share) plus dividends paid. Converted into GBP.
4 Performance data does not exist for periods before launch in December 2015.

What are the risks?

Past performance is not a guide to future performance and may not be repeated.

The value of investments, and the income from them, can rise and fall and investors may not get back the amount originally invested.

Companies which invest in a smaller number of assets carry more risk than those spread across a larger number of assets.

The Company may invest solely in property located in one country or region. This can carry more risk than investments spread over a number of countries or regions.

The Company may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of the assets purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so.

The fund holds investments denominated in currencies other than sterling, changes in exchange rates will cause the value of these investments, and the income from them, to rise or fall.

The dividend yield is an estimate and is not guaranteed.

Schroders is a world-class asset manager operating from 32 locations across Europe, the Americas, Asia, the Middle East and Africa.

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Important Information

Collective investment schemes are generally medium to long-term investments.

The value of participatory interests or the investment may go down as well as up.

Past performance is not necessarily a guide to future performance.

Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending.

A schedule of fees and charges and maximum commissions is available on request from the manager

The manager does not provide any guarantee either with respect to the capital or the return of a portfolio

The performance is calculated for the portfolio. The individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. All fund performance data are on a NAV to NAV basis, net income reinvested and net of ongoing charges and transaction costs. Data is not available for the time periods with no % growth stated. In case a share class is created after the fund's launch date, a simulated past performance is used, based upon the performance of an existing share class within the fund, taking into account the difference in the ongoing charges and the portfolio transaction costs, and including the impact of any performance fees if applicable.

Annualised return is the weighted average compound growth rate over the period measured.