M&G confirms £112m Fleet Place House buy as part of European mandate

M&G Real Estate has confirmed its acquisition of Fleet Place House in London, paying £111.7m (€121m) for the 92,000sqft office building on behalf of an unnamed Asian investor. 

It is the first value-add UK real estate investment made by the Asian investor and kicks off a new mandate awarded to M&G to invest in large assets across Europe.

London-headquartered M&G has traditionally been associated with core real estate, but in recent years has moved more into value-add investments, often looking to take advantage of pricing dislocations in the market due to Brexit uncertainty.

One year ago, it acquired a London office development project, 40 Leadenhall, for £875m, less than three months ahead of the Brexit deadline, 

This year, at the height of the UK’s COVID-19 lockdown, it made an offer for the nine-storey Fleet Place House, a 20-year-old building with a vacant floor and in need of modernising.

The building was sold by Chinese investor Beijing Capital Development Holding, which it acquired the building in 2017.

M&G plans to promote flexible working and staff wellbeing, and to install new changing room facilities, drying rooms, bicycle storage, and e-bike and e-scooter spaces.

Despite uncertainty around the future of offices generally and the potential impact of Brexit on London specifically, Paul Crosbie, who leads M&G’s UK value-add activities, said the company was able to underwrite the deal, factoring in the need for capital expenditure.

Crosbie said the fundamentals of the building, including location, transport connections, diverse occupier base and a structure amenable to modernisation meant it had “core” attributes.

But, he said, with most investors increasingly focused on stabilised core assets, “anything with risk attached is broadly being ignored”.

M&G will able to invest across Europe on behalf of its client, but it is likely to make more deals in the UK, because of relative pricing and currency considerations.

UK real estate “went into this pandemic in pretty good shape”, he said. Not only had the market not repriced since the post-EU-referendum correction, it went into 2020 with low levels of new supply, low vacancy rates and strong demand for grade-A commercial space.

“If you then add in the discount of sterling for some of these investors, there is an added benefit of entering the market at this point in time – if you take a medium-term view and you believe in London,” Crosbie said.

Crosbie has been managing the M&G UK Enhanced Value Fund, a value-add vehicle focused on assets with smaller lot sizes.

“Here for this institutional Asian client we are able to do exactly the same but on a far greater scale,” he said. “It means we are able to access, for example, the central London office market.”