M7 is one of the leading specialists in the pan-European, regional, multi-tenanted real estate market.
M7 has circa 160 employees in 9 countries. The team manages over 470 retail, office and industrial properties with a value of circa €5.6 billion.
M7 identifies value-add investment opportunities for investors in the smaller, multi-let sector. This sector is often neglected and considered inefficient due to the small individual lot sizes and the management intensive nature of the underlying assets.
However, M7’s established platform, market leading information and data management systems and experienced team ensure that M7 can capitalise on this perceived inefficiency. The business typically aggregates numerous individual assets to form large portfolios with income levels and yields above the real estate market averages.
Strategic corporate development
M7 was established in 2009 and focused initially on the UK multi-tenanted industrial sector. The need for efficient and accurate data management was a key part of the firm’s founding philosophy.
The development of the continental European platform started in 2013, with the goal of providing real estate owners and investors with a first class, integrated asset management platform across Europe, specialising in multi-tenanted regional real estate. With local teams on the ground in 9 countries, and territories, the business is well placed to access local market intelligence and source attractive deals. All assets are actively managed throughout the holding period, integrating local market intelligence into the decision-making process.
In September 2021, Oxford Properties Group, a leading global investor, asset manager and developer of commercial real estate, acquired M7. M7 continues to operate as a stand-alone business. The transaction provided M7 with the support and resources of a significant global real estate investor which shares M7’s entrepreneurial ethos and strong ambition to grow the business substantially over the next few years to create a truly world-class industrial-focused asset and investment management platform.
Sector forecasts
UK:
After a strong post-COVID rebound the UK economy is now more challenged. Output is declining; inflation remains elevated, and the labour market is showing signs of weakening. The key economic challenge is inflation, which was at double digits for 13 months and hitting levels not seen since the 1980s of 14.2% (RPI October 2022). The August 2023 base rate increase to 5.25% was the 14th consecutive hike. Businesses and consumers have limited their spending faced with spiralling prices and high interest rates on loans. Expectations are that inflation has reached its peak and will fall gradually due to higher interest rates, cooling domestic demand and lower wholesale import pricing. Interest rates are now at or close to the anticipated peak at the end of 2023 and not expected to fall until late 2024.
Commercial property yields softened at the end of December 2022 and early 2023. Many expect further yield weakening towards the end of 2023 and into 2024. The key influence on this is the cost of debt. Investors in a position to take a longer-term view that are not reliant on expensive debt may well start acquiring assets from more exposed leveraged investors. There is still a weight of global capital seeking a home in UK real estate. The gap between stronger and weaker assets with more vulnerable occupiers is widening. Overall investment volumes are down, sellers are reluctant to dispose of assets, and new development supply is slowing. It is income returns rather than capital growth that will drive total returns in 2023 and into 2024.
Diving deeper into specific subsectors, M7 believes that retail warehousing will continue to perform well due to its robust occupier market and limited supply. The nature of retail warehouses, and where they are located, positions them well to meet consumer and occupier demands in a world where omni-channel retailing (including click and collect) and e-commerce become a key focus of many retailers. This combined with high development costs limiting supply, resulted in H1 2023 vacancy sitting at 4.6%, a number that M7 expects to decrease, causing upward pressure on rental values. M7 believes that retail warehouse pricing still looks attractive when compared to other asset classes.
The industrial and logistics sector continues to show resilience underpinned by a growing and diverse occupier base, which has helped maintain low vacancy levels and an upward pressure on rents. Continued strong occupational demand has resulted in some new supply coming to the market. However, due to increased development costs, there is still a lack of supply which will result in higher rents, a trend that M7 expects to continue throughout 2023 and into 2024. Investment volumes have seen significant drops but with inflation and interest rates expected to stabilise towards the end of 2023, M7 expects transaction volumes to pick up again during 2024, presenting new opportunities for investors.
EUROPE:
Eurozone GDP is expected to expand by 0.8% in full-year 2023. Slowing inflationary pressures, a record-low unemployment rate and a buoyant tourism sector will support economic growth in the remainder of 2023, offsetting some of the impact of high interest rates and subdued external demand. Headline inflation in the euro area is expected to slow, although there is significant divergence within the region for both inflation and GDP growth. Among the largest economies, the German economy continued to stagnate, the Italian economy contracted as the downturn in the manufacturing sector worsened and the French and Spanish economies grew, with the former supported by strong exports and the latter by recovering domestic demand.
Much in line with UK commercial property yields, eurozone yields continued to rise throughout 2022, before plateauing towards Q4 2022. However, unlike the UK, this was less significant and slower to hit the market. But, like the UK, many are expecting further yield weakening in many of the core markets in the latter half of 2023 and into 2024, largely driven by the increasing cost of debt. Whilst some forecasters are predicting a recession in some core EU markets, other markets seem to have inflation under control, such as Denmark, which would remove the need for further rate increases and allow investors with undeployed capital and in a position to take a medium to long term view to acquire assets. Overall investment volumes are down, with sellers reluctant to dispose of assets and a significant decrease in new development supply. Like the UK, it is income growth, rather than capital growth that will drive total returns in 2023 and into 2024.
M7 believes the industrial and logistics sector continues to show resilience and provide opportunities. Whilst H1 2023 occupational demand was down year on year, Q1 2022 was the strongest on record for several occupational indicators, leading to a strong H1 2022. When comparisons are made to pre-pandemic years when the market was still considered strong, prior to occupational expansions driven by increased online retail, H1 2023 was still a strong period occupationally. In addition to the strong occupational market, development costs also remain high in Europe, leading to restricted supply in key markets and continued rental growth. M7 believes that in the short to medium term, an improving economy in Europe will lead to growth in an already diverse and resilient occupier base, which combined with nearshoring and a lag in new developments, will keep an upward pressure on rents and keep vacancy low. Investment volumes in the sector have seen significant drops throughout 2023 due to the volatility of interest rates. However, with inflation rates expected to stabilise towards the end of 2023, M7 expects transaction volumes to pick back up again within the sector, presenting new opportunities for investors with capital to deploy.
Investment Principles & Strategy
Through its extensive European network, M7 is able to identify a pipeline of attractive real estate deals across the UK and continental Europe.
M7 identifies investment opportunities for investors by linking a value-oriented investment philosophy with an active, hands-on asset management platform. The on-the-ground real estate experience available to the business through its pan-European platform results in a top-down and bottom-up approach to initial investment decisions and ongoing asset management strategies.
M7’s fund management business will continue to offer investors the opportunity to invest in higher yielding commercial real estate across Europe. In parallel, M7 will continue to provide advisory services and asset management services on a separate account basis and will consider co-investment joint ventures.
Performance verification
M7 looks to agree target returns for each of the strategies implemented. We have a team focused on reporting and measure performance against forecast on an ongoing basis.
COMPLIANCE STATEMENT
This information is intended for Professional Clients and Institutional Investors only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services and should not be used as the basis for any investment decision or relied upon in any way by the public. No determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects and the information within is of a general nature. The source of all information is M7 unless stated otherwise. M7 has a wholly owned subsidiary, M7 Real Estate Financial Services Limited, that is authorised and regulated by the Financial Conduct Authority (Reference number: 618047).
