German group Union Investment said it has invested around €4.1 bn in the European commercial real estate market in 2020, securing a total of 62 properties or projects for its real estate funds through a combination of single-asset and portfolio deals.
This is a major increase on the previous year, when Union invested €2.8 bn spread across 28 transactions. Total real estate sales during the year amounted to a meagre €10 mln in 2020. Real estate assets under management grew by 8.9% last year to a total of €47.3 bn.
Union Investment’s open-ended real estate funds attracted net inflows of around €2.9 bn last year.
'The past investment year was one of the most challenging in our company’s history and yet also one of the best,' said Michael Bütter, head of the real estate segment and CEO of Union Investment Real Estate.
In the ongoing low interest rate environment, professional risk management remains particularly critical, Bütter added. 'We nevertheless look forward to the new year with optimism, from a position of strength, and believe that we can continue to deliver significant growth in our real estate business in 2021, both on the retail customer side and in institutional real estate.' Union Investment intends to further diversity in the five asset classes of offices, hotels, retail, logistics and European residential, with new property fund products for institutional clients and a stronger direct presence in the key investment markets.
Core strategy
In the past financial year, Union focused on acquisitions in established European business locations with continuing good growth prospects, paying particular attention to a sustainable yield on real estate assets. In 2020, Union Investment’s investment activity accordingly revolved around Germany and the Netherlands, with real estate acquisitions in Belgium, Ireland, Spain and the UK also being part of the mix. The largest single-property transactions included the Neue Balan Haus 27 office property in Munich and the Ericus-Contor building in Hamburg. With a total of three portfolio purchases worth a combined €1.5 bn, Union Investment was one of the most active European buyers in terms of high value deals last year. The acquisition of the Medicus portfolio, comprising a total of six mixed-use core properties in Düsseldorf and Berlin, was one of the biggest office transactions in Germany. Union also significantly expanded its market position in the logistics market by acquiring two major portfolios with a total of 28 properties.
'The logistics and residential segments have proven particularly robust during the crisis. Union Investment is aiming for further European expansion in these areas in 2021,' said Martin J. Brühl, Chief Investment Officer and a member of the management team. With a total of 20 transactions, the core office property business is Union Investment’s main investment focus alongside logistics. Brühl sees 2021 as the right time to enter a number of markets that have a limited pipeline of speculative office space and which are therefore most likely to recover fast from the current crisis. Examples include Munich, Luxembourg and Stockholm.
Over the medium term, Union Investment’s portfolio is also set to grow significantly again overseas as part of its strategy of international expansion. 'The pressure of capital inflows into Europe’s safe havens shows no sign of abating,' commented Martin J. Brühl. 'Global investment is an important element in our diversification strategy, which aims at achieving even better protection against future crises. The US and Japan in particular offer exciting opportunities for re-entering the market.'
Average performance of 2%
The company’s open-ended real estate retail funds for retail customers and institutional investors returned an average of 2.0% as at the end of 2020, despite the coronavirus pandemic. 'Open-ended real estate funds remain a comparatively attractive investment in the current environment, even given the slightly higher volatility that is expected,' said CEO Michael Bütter. Union Investment continues to expect a good outlook for its real estate business.
'Despite the Covid-19 crisis, there are a whole range of opportunities in the market, especially for equity-rich players. Union Investment has put itself in an excellent position to leverage these opportunities in a variety of ways by taking important investment decisions around digital transformation and through exemplary HR management during the coronavirus crisis,' said Michael Bütter. 'When the markets recover, not least in the hard-hit hotel and retail segments, we intend to take advantage of that momentum for our investors in 2021. We will deploy all our resources and the entire real estate team in Hamburg, along with our offices in Paris, Madrid, New York and Singapore.'
