What is M&G Real Estate focusing on in continental Europe?
Our continental European team is undergoing significant growth—our team has doubled in size over the last 18 months and we are now active in 11 different countries. We have offices in Paris, Frankfurt and Stockholm, and we are looking at opening additional offices in the near future, fuelled by the growth in our portfolios.
Ultimately, we are focused on finding stable income streams and diversification for our investors. Since March 2015, we have invested over €865 million, and our assets under management are growing. Having local platforms, people on the ground and local staff to manage the assets means we can be present in the market to source and manage transactions. It’s important to have an expanded local network, and the same goes for managing assets and communicating with tenants.
What are your investment strategies in the region?
We have two main strategies. The first is a traditional core European property strategy, which invests in retail, office and logistics assets in all of the markets we’re present in, including Portugal, Spain, Italy, France, Germany and Denmark.
The second is a pooled institutional strategy, which invests in long lease continental European real estate, where we are looking for tenant commitments of 15 years or more. It combines our credit analysis and real estate skills to source quality long-term stable income.
These investments can be backed by various types of real estate collateral so long as the credit quality of the tenant can be ascertained, and resonates well with real estate directors looking at potential sale-and-leasebacks. It is an established asset class in the UK, but not as widespread in continental Europe.
We are also gradually increasing the size of our investments. Currently, our average size of investment is €70 million, the smallest deals we do are around €20 million, and the largest has been €208 million. We plan to shift the boundaries upwards, targeting larger transactions and deals, on average, that would allow for accessing a larger array of potential investments.
In terms of investments, this summer we made our largest investment to date in continental Europe: Market Central Da Vinci, the largest retail park in Italy, close to the Leonardo da Vinci Fiumicino airport in Rome. This was an off-market transaction for €208 million.
We also completed a €175 million acquisition last year in Madrid, for an office property that we are fully refurbishing.
It will house media company WPP on a 17-year long-lease contract, and demonstrates the kind of deal that we are targeting—creating a long-term partnerships with a strong tenants.
How about in the retail, office and logistics space?
We have substantial funds to deploy and are acquiring across all sectors in many different markets. In terms of retail, we are targeting food-anchored, regionally dominant and high street assets.
We have made high street investments in Milan and Copenhagen, and in Portugal we completed a sale-and-leaseback on a portfolio of 12 Sonae supermarkets.
We are working to the same strategy with office buildings, mainly targeting northern Europe: France, Germany, the Nordics and the Benelux region. We are seeing rental rates improving in all of these jurisdictions and we are looking at multi-let properties in order to diversify the risk on the income side.
Have you seen any changes in the European market following the UK’s vote to exit the EU?
When extraordinary events like Brexit happen, it often serves as a catalyst for our clients to increase diversification. The markets throughout Europe are performing very well at the moment.
At the time of the vote this summer, it was typically the time when the markets tend to slow down.
But, since the return to work in September, the markets have returned to normal and, if anything, we are seeing renewed interest in continental Europe.
Previously, some investors may have considered the UK for investment because it is a useful gateway into Europe. The language is almost universally spoken, the rule of law is another benefit, and commercial real estate tends to be more liquid. The UK will still continue to be attractive to overseas investors but some investors are now considering branching into continental Europe.
The vote underlines the point that all investors need to diversify.
Investing in Europe is diverse in itself—there are so many different countries and markets, some which lend themselves to retail investment, some that work better for offices.
Different markets have different growth rates, legal systems and currencies, and it’s this diversification that attracts a lot of interest.
While M&G Real Estate has been investing in continental Europe for the past 15 years, we have seen substantial growth over the past 18 months—we began our own journey of diversification long before the Brexit vote.