"Factor Investing" by Primonial REIM

a tool for evaluating the potential of the tertiary markets

Economic growth, changing uses, the Grand Paris Express… So many events that impact office real estate in respect of both the strategy of the users and the strategy of the investors.

As major investment player, Primonial REIM set out, in its new study on office real estate, to give the keys to its strategy on this market by applying a proprietary method. Focus on “Factor Investing”: a tool for evaluation of the tertiary markets.

Currently, certain key markets are experiencing very high entry prices compared to the revenues generated by certain assets. It is important therefore to identify sectors with a limited offering and which could see strong growth in rents, while the risks take their toll on the economic climate.

In this context, an analysis grid should be created in order to identify the markets where prices remain affordable and/or able to benefit from a favourable evolution to the rental market. Drawing inspiration from the finance sector, Primonial REIM Research and Strategy has developed an original tool for its investment strategies: “factor investing”. This approach consists of taking into account 6 factors that we have adapted to the real estate world across 50 criteria.

 

Find the analysis of Henry-Aurélien Natter, Research Manager, in the IEIF magazine Réflexions Immobilières.

The six factors and the criteria upheld are as follows:

  • Quality (growth in employment, deliveries of Grand Paris Express stations, stock, economic indicators and user indicators);
  • Growth/Momentum (prospects of total return and cost of finance);
  • Volatility (data on vacancy, market concentration, the future additional stock, the speculative offering, the historic volatility of the return);
  • Value (rental data and data on pricing);
  • Return (data on the real estate rate of return and the risk premiums);
  • Liquidity (data on the investment market).

For the 50 criteria, we chose sets of data using an identical methodology for all markets we wanted to test. We were thus able to identify the exposure of each market to these factors.

Why “factor investing”? Because we think it is not the factors themselves that could potentially generate an outperformance in the long term, but the way in which they are combined. While the exposure to factors may be more tactical, the transition between the cycles of the markets may be more difficult to determine.

Discover how to apply this method and our conclusions in our study.

 

 

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The team

Daniel While
Daniel While Research, Strategy & Sustainability Director

Henry-Aurélien Natter
Henry-Aurélien Natter Research Manager

Adrien Isidore
Adrien Isidore Economist Statistician

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