One of the top 10 quotes that are part of the legacy of Johan Cruyff, the late Dutch soccer star and rhetorician, runs as follows: ‘Every disadvantage has its advantage.’
In his home country, this phrase has become just as well-known as the English proverb ‘every cloud has a silver lining’. With global real estate investors sitting on the sidelines in the UK in recent months ahead of the referendum on 23 June on whether the country should stay in the EU or leave, the disadvantage for the home side has been that transaction volumes have plummeted. But there may well be an advantage after half-time – many industry watchers are predicting a pick-up in the second half of the year, albeit that it may be more muted if the UK does vote for a Brexit.
Whatever the outcome, on the Continent investors have been getting on with their own game and there has been plenty of goal-scoring of late on this side of the Channel. Having been very active in London over the last five years, one of the largest real estate investors in Europe, AXA Investment Management - Real Assets, now believes the biggest opportunities for development at present are on the Continent. The French insurer recently swooped on a new speculative project in its home base Paris and our own survey of pipeline office projects in Europe suggests that a shift is visible to both Western and Central and Eastern Europe.
DEVELOP-TO-CORE STRATEGIES
The Paris-based investment manager has in recent years been one of the most active home-grown players as a forward-funder of real estate developments and currently has 70 projects on the go with a total value of more than €10 bn. The development portfolio spans a number of European markets and several different sectors, according to Anne Kavanagh, global head of asset management and transactions. ‘For us this is business as usual. Many of these projects are develop-to-core strategies, which now represents a large proportion of the business we are undertaking for a number of our client mandates.’
In 2015, AXA led a consortium of international investors including Malaysia’s Temasek Holding to buy the site of the former Pinnacle development on 22 Bishopsgate in London for over €400 mln. But having been very active in London over the last five years, the biggest opportunities for development at present are now on the Continent, Kavanagh said. ‘Fundamentally, there is very little speculative debt financing available for developments and a very limited pipeline in most key European cities. We anticipate, as a slow economic recovery comes through, that the market will improve and we have already seen take-up in key markets return to the 10-year average.’
The news is also good on the southern flank. Our latest Investment Briefing on Southern Europe revealed that Italy’s economy is getting back on track and that investors are prepared to jump again into the country’s small listed real estate sector. Indeed, market watchers believe Coima’s recent IPO signals a turnaround in market perception by international investors, prompting Philip Charls, CEO of EPRA, to crow it may lead to a ‘REIT renaissance’.
ITALIAN STOCKS IN DEMAND
Last year, other Italian real estate companies seeking to float on the Milan stock exchange failed to gather sufficient investor interest due to market volatility, but Italy has strong growth potential, Charls said.
On the macro-economic front, the signals have turned to green. Italy saw its economy expand by 0.8% in 2015, its first year of growth after a three-year long recession. The International Monetary Fund claims the country is on track for further recovery and raised its economic growth forecast at end-May from 1% to 1.1% for 2016.
Already last year, a wave of international investors converged on the Italian property market, acquiring office buildings and shopping centres for a combined sum of €7.4 bn, according to JLL. ‘That was the best result in the last 10 years,’ Cristina Zanzottera, head of research Italy at JLL, noted in a study. ‘Compared to 2014, volumes increased by 39%.’
This year, Coima aims to contribute to further transaction market growth and will use the cash it has raised to acquire the headquarters of Vodafone in Milan for €200 mln. The deal was pre-arranged subject to a successful IPO. Overall Coima plans to invest up to €500 mln in the near term and aims to distribute a dividend of 4% to 5%, CEO Manfredi Catella said.
CONSOLIDATION CONTINUES IN FRANCE
Listed Italian property firms are also profiting from renewed international interest in commercial real estate, although their stock market quotations have fluctuated heavily in the past 17 months. Rome-based office investor Beni Stabili, part of the Foncière des Régions group, has seen its share price gain 12.4% since early 2015. Shares of Bologna-based mall investor Immobiliare Grande Distribuzione (IGD) have risen even more by 23.4%. In late May, the Italian REIT issued a €300 mln year bond at a fixed rate interest equal to 2.50%.
While the UK still has one of the biggest REIT sectors in Europe, new players continue to emerge on the Continent. In France, for example, the country’s two leading office landlords Gecina and Eurosic are engaged in a duel to get their hands on a smaller listed specialist. And over in Belgium a new non-listed REIT structure for pan-European institutional investors in direct property is now in the offing, we learned at the PropertyEU/EPRA Benelux Investment Briefing at the Realty real estate trade fair in Brussels.
That would not only give Luxembourg a run for its money, but could also be a major game-changer in Europe.
Judi Seebus
Editor in Chief PropertyEU
