AEW UK has reached a second close on its South East Office Fund, raising £30m (€40m) from a local authority pension scheme and £70m from Aviva Investors’ multi-manager arm.
The commitments to the UK value-added strategy were revealed shortly after Rockspring Property Investment Managers announced it had brought two Danish pension schemes into its latest fund.
Both funds are targeting returns upwards of 12% and show that institutional investors are comfortable betting on a further strengthening of the UK commercial real estate market, which returned 17.9% last year, according to IPD’s quarterly index.
“There is a strong correlation between demand for office space and the performance of the UK economy and with the latter in a cautious recovery, business confidence has picked up,” said Richard Tanner, head of investment strategy at AEW UK.
The South East Office Fund will invest outside central London, targeting the Thames Valley and markets close to motorways that connect the capital city with regional economies to the north and west.
“The area has excellent transport links and Crossrail is set to open up the M4 corridor in 2019,” Tanner said. “We are seeing growing occupational demand in the technology and pharmaceutical sectors but development remains significantly limited.”
Alistair Dryer, senior fund manager at Aviva Investors Real Estate Multi-Manager, said it was “an opportune point in the investment cycle for our clients”.
Meanwhile, two unnamed Danish pension funds have provided £100m in capital to Rockspring’s UK Value 2 fund, taking total equity to £342m.
The institutions join investors from Australia, Finland, Germany and the UK.
With 50% gearing, the fund could be in a position to invest £650m in core-plus and value-added assets across the UK.
The fund, which follows on from the fully invested UK Value 1, has already invested £200m in seven properties, including retail, office and development land assets.
“Not only did we achieve final close within a record timeframe, we also received commitments from a significant mix of both new and repeat investors,” said fund manager and Rockspring partner Richard Bains.
“Our ability to access quality assets – on a predominantly off-market basis – has ensured the swift investment of nearly a third of the fund’s capital to date, and I am confident that, with the pipeline we already have in place, we will be able to meet our target of securing circa £650m of assets by the summer of 2016.”
