Commerz Real’s head of transactions says the giant German investor is considering buying in London again after a long absence.
The fund manager of the €15 bn-plus open-ended Hausinvest fund and other vehicles and mandates is one of a number of significant German investors which have not been active in the UK during the period of Brexit uncertainty.
Henning Koch, board member at Commerz Real, says the completion of an EU-UK trade deal at the end of 2020 and the end of the Brexit transition period meant ‘that we now have clarity on the Brexit situation'.
He told PropertyEU: ‘It took a while, but it is good in the end to have the position cleared. This now gives us the clarity to really look at the country again and to better understand what the consequences are coming from the trading agreement.’
Brexit had been the last of several hurdles keeping Commerz Real from making new investments in the UK, Koch said. ‘We have not spent a pound in the UK market since the global financial crisis. Commerz was quiet immediately after the GFC. And then we had a number of factors including relatively high hedging costs against the pound which meant it was not easy for us to achieve the required returns. Then, the economic outlook and the consequences from Brexit was the topic.’
Koch said Commerz Real would be careful and wait for the right opportunities. However, the UK capital was now ‘a very interesting market because cap rates are relatively high compared to Paris and Germany, so there’s an attractive premium.
‘In the end, as a global manager or fund you cannot ignore the UK and London in particular. We are watching carefully. We had a discussion just last month with a British developer with an interesting scheme in the City. So we are close to the market and we are talking to people.’
A handful of big German investors, including Deka and DWS, have continued to be active in the UK at points during the four and a half years of Brexit uncertainty. Others, such as Union Investment had largely held back, although Union bought out JV partner Oxford Properties in City asset Watermark Place last March.
Pent-up demand
Adam Irányi, investment manager at Union Investment Real Estate, told PropertyEU: ‘The jury will be out for a while to determine how business performance and rents will re-calibrate in a post-Brexit “Global Britain” and how London will be able to maintain its relevance as a financial and tech hub.’
He added: ‘At the same time, increased uncertainty may also create an interesting environment for smart investors for capital deployment and diversification in a market which has historically experienced a higher volatility.’
Brokers are convinced that pent-up demand overlaid with the sheer size of the London market, Brexit resolution and the lower costs of hedging and borrowing will prove a formula to turn both German investors and other euro-denominated buyers into competitive buyers again in the UK this year and into 2022.
Assuming the latest Covid travel bans can be somewhat relaxed, Chris Brett, EMEA head of international capital markets at CBRE, believes London core office yields will start to converge with other top European cities. ‘The cap rates, from what we can see now, are going to harden through the course of 2021.’
See February’s PropertyEU magazine: ‘After the Brexit deal, will London’s star rise again?’
