​Velliv to build up housing exposure in new ‘future-proof’ RE strategy

Danish mutual pension provider Velliv is implementing a new real estate strategy that will see residential and newer properties take up more space in its DKK255bn (€34.2bn) portfolio.

The overhaul of the strategy comes under the leadership of new property chief Solveig Rannje who took up the reins in October 2019.

Rannje told IPE Real Assets: “The objective was to make the portfolio more robust and future-proof, for instance by investing in new or newer properties.”

After she joined the investment department of the customer-owned pension fund, which grew out of the Danish side of Nordea’s life and pensions operation, Rannje said she thought it worthwhile to define the framework for Velliv’s property investments.

“However, before setting to work on the strategy, it was necessary and relevant to get to know the existing property portfolio,” she said, adding that the finalised strategy was not in place until the spring of 2020.

Under the new plan, the proportion of residential investments will rise, some older properties will be converted to newer offices and homes, and the geographic spread of Velliv’s DKK17bn of real estate investments is to be broadened.

Velliv currently has around 270 property assets, most of which are office and logistics buildings in Denmark. About 30% of the portfolio is owned in partnership with other institutional investors.

“The existing portfolio consists of many small commercial properties across Denmark that are typically costly in terms of management time, and the re-letting risk is high,” Rannje said.

“These properties are often older buildings, which means high maintenance and renovation costs, for instance in connection with re-letting,” said Rannje, adding that increasing the energy efficiency of such properties could also be expensive.

“The aim of our forward-looking strategy is to create a more efficient and robust portfolio mix, optimising total risk-adjusted returns.”

For the time being, the pension fund is maintaining its focus on direct, domestic investments, and Rannje said Velliv was still optimistic about the Danish property market’s potential to yield attractive, risk-adjusted returns.

“This does not mean that investments abroad will not be considered in the long term – for instance, with a view to spreading the risk,” Rannje said.

In the meantime, the geographic focus will be broadened beyond greater Copenhagen to include cities like Aarhus and others demonstrating growth, educational institutions and good infrastructure.

For diversification and in line with the interest of its customers, Rannje said Velliv would “focus on increasing our residential property market exposure, which today makes up a very modest part of our total property portfolio”.

She added: “We will continue to focus on modern and primarily office and logistics properties.”

With a view to future-proofing the portfolio even more, Rannje said Velliv intended to convert some of the older properties it owned on the outskirts of towns into newer office and residential buildings.

She said sustainability had been taken into account in the existing portfolio, and Velliv aimed to have all new investments environmentally certified so as to reduce the pension fund’s environmental and climate impact.

“This would also help future-proof the negotiability of the portfolio and its attractiveness to existing and future tenants,” she added.

Even though COVID-19 is on the rise again in Denmark, Rannje said Velliv expected real estate investment levels to be high for the rest of 2020. Buying interest from both Danish and foreign investors was apparently continuing, she said, particularly for Danish core and core-plus properties.

“In view of the fact that a vaccine is on the way, there is less risk of a renewed slowdown, so I am quite optimistic with regard to the market,” Rannje said.

“However, rental levels may be affected, especially for the retail segment - but also with regard to office buildings, which may affect values.”

Back in July, Velliv linked up with Industriens Pension to invest in a project worth over DKK500m to build a new sustainable headquarters for Danish law firm Accura in Copenhagen’s North Harbour district.

It was an investment Rannje described at the time as a perfect fit for Velliv’s real estate strategy.