Union Investment's acquisition of the Southpoint office and commercial property being developed in Brisbane provides an 'excellent' starting point from which to build a medium-sized portfolio in Australia, according to Martin Brühl, head of international investment at Union Investment.

Union Investment's acquisition of the Southpoint office and commercial property being developed in Brisbane provides an 'excellent' starting point from which to build a medium-sized portfolio in Australia, according to Martin Brühl, head of international investment at Union Investment.

While most foreign investors normally start with Sydney or Melbourne, Brühl noted that Brisbane is one of the fastest-growing cities in the country. ‘Brisbane is the capital of the economically strong state of Queensland and the third largest city in Australia with 2.2 million inhabitants. It also has one of the largest office markets in the country, totalling some 3.4 million m2 of space.’

In any case, Union Investment is also looking at opportunities in Australia's other big cities including Sydney, Melbourne and Perth, Brühl said. In addition to providing project financing, the fund manager is also interested in buying existing assets, he added.

Australia makes an ‘excellent addition’ to Union Investment’s international strategy, Brühl noted. He lauded the high level of transparency of Australia’s real estate markets and the strong investment culture instilled in the development community generally and the developer of the Southpoint office project in Brisbane in particular.

The scheme is 90% pre-let following a 10-year lease to the building's principal tenant, Flight Centre Travel Group, one of the world’s largest travel companies, Brühl noted.´The data rooms of Anthony John Group (the developer ed.) were very complete and the quality and accuracy of the documents provided was of top international standard.´

He added that Australia is one of the largest and most promising office markets in the Asia-Pacific growth region and that Union Investment still sees scope for yield compression across the country’s office markets. The Germany company initially had its work cut out for it to explain why it was interested in Australia, Brühl conceded. ´We had quite some explanation to do and had to explain who we are and why we were interested in investing so far further afield. It’s true that the further afield you move, the more complicated it gets.’

Other acquisitions beyond Europe
Union Investment already has a sizeable presence in Asia Pacific, with a portfolio of 13 properties in the region, with a current value of €850 mln. In early June, Union Investment extended its presence in Asia with the acquisition of a Tokyo office block from Singapore-based investment firm, Alpha Investment Partners for for €127 mln.

Markets outside Europe will play a growing role in the company’s acquisition strategy, chief investment officer Frank Billand said. In total, Union Investment hopes to invest €2 bn in real estate globally this year, of which around half is expected to be in development projects. That would roughly match the figure the fund manager spent on both acquisitions and development projects last year.

Alongside last year’s high purchase volume, the investment team headed by Billand also sold 19 properties with a total value of €715 mln. The sales portfolio covered six national markets, including the Czech Republic, Japan, the US and for the first time Mexico. Overall, Union Investment carried out 50 real estate acquisitions and disposals totalling €2.8 bn in 2013, making it the largest provider of mutual property funds (Publikumsfonds) in Germany.

In addition to Asia, Union Investment is also targeting the US, Billand said. Indeed, the fund manager plans to invest $2 bn (€1.5 bn) in the US over the next three to five years on behalf of its global open-ended funds. 'Having been active in the US for 30 years, we have reconfirmed the US as our main target market outside Europe in our strategic planning,' Billand told PropertyEU earlier this year. 'With the help of our investment advisors Metzler Real Estate, we intend to invest up to $2 bn in the US growth markets.'

Recent investments in the US include the acquisition of 555 Mission Street in San Francisco in 2012 and Research Park Plaza III & IV in Austin in 2013.

Brühl: ‘We like outperforming economies and locations. The US is an outperforming economy and second-tier cities like Austin, Texas, are showing above-average growth due to growth of government and technology. About 70% of our assets are located in core Europe and the split will probably remain the same. But we will continue to turn over assets (and modernize our portfolio).’ In addition to the United States, the German investor is also seeking to expand its presence in Canada and Mexico, Brühl said.

Regional city focus
Closer to home, Union Investment was one of the pioneering investors in the UK to extend its reach beyond the capital London and focus more on regional cities, including developments. In addition to Cardiff, it has already acquired office schemes or existing assets in Glasgow, Birmingham, Manchester and Stansted over the past three years, noted Brühl. Union Investment's open-ended real estate funds currently have five office and hotel investments in UK regional markets worth a total in excess of €310 mln.

‘We continue to look at assets in London, but we are also looking at the top assets in the regions, in particular in prime locations in secondary cities.’ While prices are also starting to rise beyond the London market, Brühl does not see any immediate risk of overpricing in the regions. ‘We continue to monitor pricing relative to long-term statistics.’

Union Investment’s view on development is based on its ownership and active management of some 400 buildings worldwide, board member Reinhard Kutscher added. ‘At any given time, a dozen or so are in need of restructuring or refurbishment. We have a strong asset management in Paris, London and Hamburg with 120 staff in our team.’ This figure includes 30 project management specialists, mainly in Germany – which accounts for about half of Union Investment’s development activities, but also Paris, Madrid, New York and Singapore.’

Thanks to a lid on development in the wake of the financial crisis, there is now a shortage of Grade-A offices in London and selected office markets in the UK, Kutscher added. ‘This market has been very stable. That is good news for real estate investors.’

Thanks to its track record in purchasing developments and its asset management expertise, Union Investment extended its reach to its fifth continent earlier this year with the acquisition of a development project in the South Bank district of Brisbane in Australia for a purchase price of approximately $A200 mln (€138 mln). The 27,900 m2 multi-tenant, Grade A building, which is currently 90% pre-let, is scheduled for completion in the second quarter of 2016.

‘The key to a successful acquisition of a development project is to make sure you’re getting what you’re paying for,’ Brühl commented. ‘But there is a real advantage in that there is much more limited competition compared to auctions.’

While Union Investment´s portfolio reflects the broad spectrum of real estate categories with the exception of residential, its overseas acquisitions, in particular when it comes to forward funding, are currently limited to offices and urban retail, Brühl said. ´Moving away from your home turf, if you want to stay on top of those developments, the narrower you get in terms of selection. We have limited ourselves to offices, possibly with a retail component. We feel more comfortable with this choice, we are able to depend on our own teams and local advisers with whom we have longstanding relationships. We want to have boots on the ground and apply our own judgment. That means going and visiting these markets and engaging with local players.’