M&G Real Estate plans to invest between €500 million and €800 million annually in property assets in mainland Europe in the coming years to replicate the growth it has achieved in the last 24 months, Olivier Vellay, head of investments for continental Europe, told S&P Global Market Intelligence.
The real estate division of M&G Investment Management Ltd., part of insurance giant Prudential Plc, has acquired €1.5 billion worth of real estate assets in continental Europe over the last two years, with €800 million secured since the beginning of 2017, Vellay said in an interview Oct. 5 at Munich's EXPO Real international trade fair for property and investment.
M&G is employing three separate investment strategies as it builds its portfolio: one targeting core assets in office, retail and logistics; another focused on long income of 15 years or more drawn from high-credit-quality rents; and a third strategy based on value-add investments, which Vellay said the company is just beginning to look at. "Through the diversification of the strategies, hopefully we can maintain the pace at which we've been growing," he added.
M&G expects to make a number of acquisitions before the end of 2017 across a range of asset types and markets, according to Vellay. "It's a mix of offices and retail, and a couple of leisure-type assets. These assets are in Germany, Spain, the Nordics and Belgium," he said.
Of M&G Real Estate's £27.8 billion of assets under management, almost 10% are in continental Europe, over 70% are in the United Kingdom, and the remainder is split between North America and Asia, data on the company's website shows. The company made £2.6 billion worth of acquisitions in 2016, with the €230 million deal for central Stockholm office scheme Blekholmen 1 and the €208 million purchase of the Market Central Da Vinci retail park in Rome among the largest.
Meanwhile, Germany has been the largest recipient of M&G's investment in mainland Europe over the last two years, Vellay said. The German market, home to nearly 25% of the company's continental assets under management, is "very deep and liquid," he said, identifying Berlin in particular as "a stellar market [that] is evolving rapidly and [where] rents are increasing a lot."
"The flip side of it is that [Germany] is extremely competitive and pricing is very high, so you need to be extra careful when performing acquisitions," said Vellay. "The idea is to bring back to our clients a pretty decent return on investment, so it's a very difficult equation to [get right] at the moment."
Among the acquisitions M&G plans on the continent in the coming years are several assets in the logistics sector. Logistics and industrial properties currently comprise around 10% of M&G's continental assets under management, a figure the company would like to be "much higher," according to Vellay. "[Logistics] was the star performer [in 2017], especially in terms of investment volumes. Clearly, occupation rates have been increasing, cap rates compressing, development being pre-let, etc. It's very healthy."
Retail is the one area where the company is being "quite cautious," due to the growing threat of e-commerce, Vellay said. Still, the company "likes the asset class" and is currently working on some high-street purchases, he added.
Events in Spain over the last week, where the northeastern region of Catalonia has threatened to declare independence, pose some risk to M&G. The company acquired an office property in Barcelona, the capital of Catalonia, last year and has other investments across the country.
"Investors don't really like uncertainty, especially ourselves, [being] long-term investors [who] have been investing in Spain for a few years now and [who] have opened an office in [the country]," Vellay said. "We're looking closely at the evolution of the situation. We're speaking with some of the market participants."