UK real estate pricing is ‘an attractive opportunity’ for ‘brave’ investors according to M&G Real Estate.
At a launch of the asset manager’s ‘The World that Covid Built’ report on 10 November, head of property research Richard Gwilliam said the spread between property yields and bond yields in the UK ‘is the widest it has been for 20 or 30 years.’
He said that while Brexit uncertainty has kept UK property yields relatively high compared with other global markets that M&G invests in, interest rates and bond yields have fallen to record lows during the Covid pandemic.
‘If you are a brave investor willing to look through to the end of the tunnel, that represents quite an attractive pricing opportunity’, he said.
Two weeks ago, M&G Real Estate bought Fleet Place House, a 20-year-old office building in the City of London in the first acquisition for a new value-add strategy for an Asian separate account mandate. The building will be repurposed.
Paul Crosbie, who leads M&G Real Estate’s UK value-add initiatives said at the time that London has a ‘muted’ development pipeline with current market dislocations offering opportunities.
At the report launch this week, Gwilliam said M&G was interested in also investing outside London, in good regional locations ‘so long as there is economic resilience.’
The investment in Fleet Place House will create a modern office environment ‘with ESG credential stretching years ahead’. M&G Real Estate global head of investment strategy, José Pellicer, said ESG was one of the top three trends the manager highlights in its report.
For core investors, Pellicer said Covid had led to a risk-off approach, with such investors viewing German real estate as Europe’s ‘concrete gold’.
However, retail is suffering ‘dramatically’. Gwilliam said some shopping centres in M&G’s portfolio were proving relatively resilient, especially those anchored by or including food retailing. ‘We have a big retail park, the Da Vinci open-air shopping centre just outside Rome which in terms of footfall has held up remarkably well.
‘The retailers there have done well in this period because shoppers are happier to go to that kind of environment than an enclosed space. We’ve had the same thing in Singapore where we have a food-anchored asset that was extensively refurbished in the last couple of years.’
Others he said, had been badly affected. ‘In our portfolio and in the wider industry there have been shopping centre assets that have suffered dramatically by virtue of having high vacancy in the first place; retailer anchor tenants, namely department stores, which have struggled due to the structural changes; and for fundamentally not being in the right locations or having destination appeal.’
