The world’s greatest industrial property landlord is shuffling its $378bn actual property deck.
Two strikes by Blackstone — the sale of BNY Mellon’s London workplace in St Paul’s to Italian insurer Generali for £465m, sealed this week in line with folks conversant in the deal, and an strategy to purchase scholar housing operator GCP Pupil Dwelling — are an indication of how landlords are repositioning their portfolios because the pandemic accelerates structural developments.
Covid-19 has hastened the decline of two key industrial property sectors — retail and workplaces — and prompted landlords to pile into alternate options they imagine will fare higher.
High of their buying record are: warehouses, supported by the ecommerce growth; rental flats and scholar housing, made enticing by house shortages and rising scholar populations throughout Europe; and life sciences campuses, buoyed by enormous funding in analysis and growth.
“These are megatrends which have . . . been accelerated by the pandemic,” stated James Seppala, head of actual property in Europe at Blackstone.
A decade in the past, workplaces and retailers accounted for about 70 per cent of whole European property deal quantity, in line with Actual Capital Analytics. This 12 months they account for 35 per cent, with the residential and logistics sectors gaining floor.
Mike Prew, an analyst at Jefferies, stated the pandemic had accelerated the “worth switch” from retail to “beds, meds and sheds” — residential housing, healthcare and life science property and warehouses.
Life science hits document
The most certainly to excite fund managers is life sciences — a distinct segment the place value data are being damaged as buyers look to purchase into or develop high-tech campuses near schooling hubs in Europe.
In Could, Oxford college’s Magdalen Faculty put a 40 per cent stake within the Oxford Science Park in the marketplace, priced at about £100m — greater than 5 occasions what the faculty paid for 50 per cent of the park in 2016.
“You’ve obtained burgeoning demand, inadequate provide and rising rents. Is that this the quickest rising sector bar none? Completely,” stated Simon Hope, head of worldwide capital markets at property agent Savills.
Properties vary from typical workplaces to advanced labs. The important thing driver of worth is location. “It’s ‘genius loci’: it’s the nice colleges, it’s the expertise,” stated Hope. The most popular location within the UK and Europe is within the so-called “golden triangle” between Oxford, Cambridge and London.
“The world’s monetary firepower, significantly from the US, is skilled on the UK as a result of we’ve obtained 4 of the highest 10 universities: Oxford, Cambridge, Imperial and College Faculty London,” stated Hope.
A document £2.4bn was invested in life sciences property within the space in 2020 and buyers are nonetheless trying to deploy greater than twice that quantity, in line with consultancy Bidwells.
“We’re spending lots of time within the life science area . . . It’s under-developed in Europe broadly and within the UK particularly. With the quantity of analysis establishments within the UK there’s an enormous alternative,” stated Brad Hyler, who manages a $38bn portfolio as head of actual property in Europe at Brookfield.
Brookfield owns half of the Harwell life science campus south of Oxford, and final month the Canadian funding group paid TPG Actual Property Companions £714m for Arlington, a science and expertise property group with belongings within the golden triangle.
However in line with Hyler, the true alternative is in constructing labs and campuses from scratch. Brookfield is creating round European cities in “Germany, Switzerland and elsewhere”.
One other rising hotspot for property buyers is logistics, the place the rising recognition of on-line buying has given an enormous increase to demand for warehouse area.
By means of its Mileway subsidiary, Blackstone has accrued a big community of warehouses near European cities, whereas Brookfield has spent greater than €1bn previously 12 months constructing a portfolio throughout France, Spain, Germany and Poland.
Rents from warehouse occupiers have held up comparatively effectively throughout the pandemic, and demand for area has been a boon for firms within the sector.
Whereas shares within the greatest UK workplace landlords, resembling British Land and Land Securities, are down between 20 and 30 per cent from pre-Covid ranges, and buying centre proprietor Hammerson has misplaced three-quarters, warehouse developer Segro is up 16 per cent.
Buyers are additionally betting on the residential sector, favouring properties for lease and scholar lodging.
“Have a look at these large European cities: they’re massive employment hubs with an enormous housing scarcity and traditionally secure economies. It makes an excellent alternative,” stated Mark Allnutt, senior managing director at Greystar, a US property investor that not too long ago raised €725m to spend money on European residential property.
“Folks need to stay in Amsterdam and London and there aren’t sufficient properties in these cities,” added Seppala.
Undersupply can be a options of the coed housing market, which ought to assist pull the sector via the disruption attributable to the pandemic, stated Hyler. Brookfield, which owns scholar housing operator Pupil Roost, is planning to extend funding on the continent.
Places of work and retailers nonetheless make up greater than half of the overall investible property sector in Europe, in line with Actual Capital Analytics. As cash crowds into specific asset lessons, buyers admit there are dangers of overpaying.
In contrast to the monetary disaster in 2008, the pandemic has not triggered a wave of distressed belongings hitting the market. But when banks lose persistence with hard-hit landlords, alternatives to gamble on knockdown offers might seem, stated Guillaume Cassou, head of the European actual property crew at personal fairness agency KKR, which has simply closed a $2.2bn fund to spend money on western Europe.
“The vital half is to play offence and defence on the similar time,” he stated.