Generali Real Estate is one of the biggest real estate investors in the world, with €30bn of assets under management at the end of 2018.
Following a long-term investment horizon and leveraging on a team of 435 professionals, with operating units located in the main European cities, Generali Real Estate coordinates the Generali Group’s real estate portfolio across the globe, and makes use of its well grounded expertise to promote investment products for third-party clients, while Generali Real Estate SGR is the fund management company in charge of real estate funds, both reserved to the Generali Group companies and third parties.
By managing a unique portfolio in terms of asset quality and mix of historical and modern buildings, Generali Real Estate has developed best-in-class skills in the fields of technological innovation, sustainability and urban development.
The Generali Group is one of the world’s leading insurance companies, founded in Trieste, Italy, in 1831. It is present in more than 60 countries, with over €66bn of revenue in 2018.
INDUSTRIAL: The European industrial transaction activity continued to weaken in Q2 2019 (–14% yoy), reaching €6 bn and reflecting a shortage of available assets rather than a decrease in investor appetite. Thus, in total the volume amounted to €13bn in the first six months of 2019, still on decline by 15% as compared to the same period in 2018. However, it is noteworthy that the industrial sector still attracted more than 10% of the European total real estate investment market in H1 2019.
Regarding prime logistics yields, rates across Europe were globally stable in Q2 2019 (reaching their historic low). The exceptions were Barcelona, Stockholm, German secondary cities, as well as some CEE markets where yields compressed further this quarter.
Despite less generous yield gaps, Antwerp, Rotterdam, Barcelona, Lyon and more broadly the main CEE markets are expected to deliver solid returns over the course of the next few years.
Office: The European property transaction market was down by 19% over a year, with around €120.4bn invested. Germany, although decreasing (–18% yoy), continued to lead investments in Europe, with almost €30.3bn recorded in H1 2019. The UK followed with €23.6bn having changed hands so far this year, in spite of Brexit uncertainty and the threat of a no-deal. Only a few markets like Italy, France, Belgium, Czech and Hungary recorded an annual increase or a stabilisation in transactions in H1 2019. On the pricing side, although the yield compression was less, prime office yields eased again in markets like Brussels, Helsinki, Athens and some German and CEE cities.
Recent economic data suggest that the global economy slowdown is continuing, as US growth is expected to weaken along with the Chinese economy, heavily penalised by the trade war. Thus, the European economy is unlikely to rebound and Generali Investments revised its euro area growth forecast down. It now sees 2019 growth at 1.0% (as compared to 1.9% in 2018), largely due to slower German growth. After a record performance in 2018, the European occupier demand remained solid in Q2 2019, with 3.2m sqm taken ( representing just 5% decrease yoy). Meanwhile, the downward trend in vacancies continued and the European overall office vacancy rate fell by 20 bps to 5.8% – its lowest rate in 17 years. With regard to office rental values, we continued to see growth in the prime segment, up to a double-digit rate of annual growth in markets like Berlin, Amsterdam and Athens.
Amid fading prospects of economic and rental growth, we expect Berlin, Frankfurt and Amsterdam to over-perform in the coming years, while Lisbon and Athens should continue to recover.
Retail: The downward trend in the European retail transaction market continued. Indeed, the volume dropped by 37% (yoy) in Q2 2019, with €8.9bn invested. As a result, the first half volume reached €15.95bn, falling by 41% over a year amid growing fears of disruption in retailers’ and investors’ business models. Geographically, this declining trend in retail investments was observed in most European markets. Only Germany and Ireland saw their volumes increase in H1 2019. On the pricing side, prime high street retail yields were flat in Q2 2019 and only a few markets like Geneva, Athens, Budapest and Sofia continued to witness a yield compression.
2018 was a low year for shopping centre development. In 2019 and 2020, development levels are forecast to pick up slightly, before shrinking again. In the period ahead 2019–23, Italy, France, Spain and Poland will dominate.
Throughout Europe, many shopping centre developments need to be focused on consumer demand that asks for more space dedicated to leisure activities and in particular food and beverage. Especially in Western Europe’s biggest markets, like the UK and France, this is often being achieved through the extension and refurbishment of the existing shopping centres.
In the CEE market the focus is more on development of dominant and regional schemes. However, also in these markets we do see a shift of changing anchors, with often a repositioning of the hypermarkets.
Looking ahead the profound and radical reshaping of the retail industry should offer various investment opportunities on a very selective basis.
Investment principles & strategy
Generali Real Estate manages Generali’s real estate portfolio worldwide and is responsible for the implementation of the group real estate strategy. The company carries out research-based portfolio optimisation and diversification across geographies, asset classes and risk profiles. Leveraging on this expertise, GRE SGR has launched a series of European cross-border real estate funds specialised by investments strategy, geographically diversified and investing in high quality underlying assets. Such funds are managed both on behalf of Generali Group’s companies and of other long-term institutional investors.
The main appetite is for investing in core and core-plus assets in the largest European cities, with a focus on prime office buildings, high-street retail and other retail space and with indirect investments in Asia and North America. Generali Real Estate uses a disciplined risk-return based investment and divestiture process to maintain a high-quality portfolio.
Strategic corporate development
In the next few years, Generali Real Estate expects to continue to invest and grow significantly its portfolio under management, leveraging on the new pan-European dimension of its fund management company, on the strong experience and market knowledge of its local teams, and on a highly effective portfolio strategy based on a thorough research-driven investment selection and sector monitoring.
Furthermore, the company will keep strengthening its fund management business, establishing new products and strategies in partnership with selected third-party investors.
Generali Real Estate periodically evaluates its performance against a number of benchmarks, according to best market practices. The performance of each fund is measured and analysed by independent third parties on a regular basis.