Corporate Overview

M&G Investments is one of the world’s largest real estate investment managers1, with over $45bn2 of real estate debt and equity investments under management globally, across 13 offices.Our real estate platform is built on scale, tried and tested strategies and robust research, providing global exposure through local experts across 12 markets. Investing on behalf of Prudential Insurance for generations, we have the strength of capital to back our investment convictions though scalable strategies and meaningful co-investments.With the breadth of capabilities to pursue relative value through market cycles and across the capital stack, we are seek to add value through a commitment to cycle resilience.Decades of experience in buying, selling and managing properties has shaped our investment approach, which focuses on identifying fundamentally well located assets that are underpinned by favourable structural and demographic trends.

Access to new opportunities and the ability to offer a range of innovative solutions spanning the full risk spectrum, is supported by our scale, experience, depth of knowledge and strong industry relationships in the markets where we operate.

Across our global portfolio, we take an intentional approach to sustainability, with 90% of assets submitted in the GRESB 2023 Real Estate Assessment awarded a 4 Star rating or above3.

1 IPE Top 150 Real Estate Investment Managers 2023.

2 M&G as at Q1 2024.

3 GRESB 2023 Real Estate Assessment results. GRESB ratings should not be taken as a recommendation. Find out more about GRESB rating methodology here : https://www.gresb.com/wp-content/uploads/ resources-gresb-real-estate-methodology.pdf 

Strategic corporate development 

M&G Real Estate’s business strategy is to offer a focused range of globally scalable funds and strategies, which are made available to the widest array of institutional investors globally. M&GRE is positioned as a market leader in pan-regional core European and Asia Pacific funds as well as in UK and European long-income funds. We also maintain a market-leading position with our funds in the UK and European residential private rented and shared ownership (affordable housing) sectors. We aim to grow assets under management through winning new third-party capital and diversifying our investor base with our existing offerings as well as launching new products in areas where we have a competitive advantage and where there is a market opportunity to build a new franchise.

To support this growth, we have expanded our distribution platform, placing dedicated real estate resource in the US and Germany. Furthermore, we are expanding our footprint with additional hires in local offices in Europe and Asia Pacific. We are also growing our residential team to support expansion. Finally, we actively seek co- investments, JVs and other capital solutions in conjunction with existing clients in Europe and Asia, and we plan to increase resource within our Capital Solutions business line.

Sector forecasts

INDUSTRIAL: 

Logistics demand and rental trends across most devel- oped APAC markets remain resilient in 2024, despite slower economic growth in 2024. Due to elevated development costs, new supply from 2025 onwards will be limited, supportive of rental growth.

Over the medium to longer term, strong structural tailwinds remain at play: growth of e-commerce retailing, post pandemic diversification of supply chains within Asia Pacific, increased nearshoring practices and upgrading demand towards higher-quality warehouses that can support automation and artificial intelligence (AI) robotics, combined with undersupply of modern facilities within the region. The turnaround in the global semiconductor cycle and surging interest in AI chips will likely bode well for with a significant semi conductor industry, an established ecosystem of component suppliers and quality processes as well as trained talent, such as Japan, Korea and Singapore.

OFFICE: 

Amid the softer economic outlook and subdued business sentiment, leasing activity is generally focused on renewal and rightsizing real estate footprints. Corporate tenant preferences remained skewed towards high-quality, environmentally sustainable offices in highly accessible locations as they face rising pressure from employees, lenders and regulators. On the capital markets front, global investors are seeking to improve diversification within their portfo- lios, by reducing their allocation to offices and increasing their exposure to other sectors. This could disproportionately impact investment demand for offices and cap rates, especially those assets which are less prime or ESG-compliant.

RESIDENTIAL: 

The APAC living sector remains compelling as investors look to diversify away from commercial sectors and reduce their office exposure. Additionally, residential assets provide stable and resilient cashflows tied closely to fundamental accommodation needs rather than cyclical economic factors. They have also been proven to be effective inflation hedges.

Japan’s multifamily sector, particularly in Tokyo and Osaka, will continue to benefit from domestic and international immigration. With elevated construc- tion costs and persistent labour shortages, multifamily supply is likely to remain subdued, supporting rents and prices. Furthermore, with inflation picking up and sustained momentum in corporate performance, firms have become more supportive of wage increases. An improving wage outlook will increase tenants’ rent affordability, lending an additional boost to rental prospects.

In Australia, the built-to-rent (BTR) sector’s occupancy and rent outlook is underpinned by the following drivers:

• Strong population growth stemming from high net overseas migration against limited dwelling completions brought vacancy rates down to 1 to 1.5% across capital cities;

• Rising home prices has eroded purchase affordability, with renting now more economical than ownership;

• Rising construction costs and high interest rates will challenge new supply targets;

• Revisions in legislations in the form of tax concessions for new residential BTR projects from July 2024 onwards, which may further incentivize foreign institutional investment.

RETAIL:

The APAC retail sector has generally benefited from the rebound in international tourism, yet the recovery remains uneven across the region. High-street retail locations in key inbound tourism destinations such as Tokyo, Seoul and Singapore continue to benefit from rental growth along with the recovery in leasing sentiment.

That said, we expect suburban retail malls with a higher proportion of essential trades to remain resilient. These malls tend to benefit from steady traffic from residential catchments and the continued purchases of essential items, which generally tend to be less affected by weaker consumers’ spending power amid slower economic growth.At the same time,upcoming supply in 2024-26, particularly for Australia and Singapore, is expected to be significantly below the 10-year historical average, which augers well for the occupancy and rental outlook going forward.

INVESTMENT PRINCIPLES & STRATEGY:

Our investment philosophy and approach is built around the needs of long term, income focused capital and is shaped by decades of experience managing the assets of insurance companies and pension funds, which make up over 90% of our AUM. Investment decisions are informed by proprietary forecasts and market insight from an experienced global research team.

We believe that:

  • Income is the primary driver of long-term returns. We target and proactively manage assets which can generate sustainable, growing income streams.
  • A balanced portfolio diversified by geography and asset type enhances risk adjusted returns over the long term.
  • Real estate markets are inefficient. Using proprietary research and financial models, we identify and exploit mispricing at asset class, real estate sector and individual asset levels.

We aim to provide commercial real estate mortgages to borrowers secured against a range of different investments, including income producing, transitional and development assets.

Moreover, we are strongly focused on self-originating debt that allows us to achieve attractive risk-adjusted returns through:

  • Origination – direct origination of loans to maximise negotiating power.
  • One-stop shop – reduce execution risk. Provide senior and junior debt in a single whole loan solution.
  • Hold-to-maturity – a buy-and-hold investor.

  • Funding large transactions – average ticket of £100m+.

STRATEGIC CORPORATE DEVELOPMENT

M&G Real Estate has built its reputation on market leading, core, open-ended, diversified funds in the UK, Europe and Asia. We have strong local teams across each region which originate and manage direct investments for our clients. In the UK we have multiple well-established funds focusing on both long-income real estate investments as well as residential property in all its forms. In the last 10 years we have also extended these skills to Continental Europe and we are looking to establish a similar residential franchise in Asia Pacific.

Similarly, we are also looking to expand our well-established European real estate debt franchise (15 dedicated real estate debt specialists) to other regions. Our growth to date has been achieved by the strong alignment of significant internal client capital in all our investment vehicles. We advise, and execute investments on behalf of our clients, based on the conviction of our local investment teams and well-resourced real estate research teams in those areas of the market where we have a competitive advantage and where there is a market opportunity to build a new franchise. We then invite third-party institutional innvestors to join us to scale up our ambitions, either as joint venture partners co investors or cornerstone investors in our funds. 

COMPLIANCE STATEMENT

The services and products provided by M&G Investment Management Limited are available only to investors who come within the category of the Professional Client as defined in the Financial Conduct Authority’s Handbook. They are not available to indi- vidual investors, who should not rely on this communication.

Information given in this document has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents. M&G does not offer investment advice or make recommendations regarding investments. Opinions are subject to change without notice. M&G plc, a company incorporated in England and Wales, is the direct parent company of The Prudential Assurance Company.

The Prudential Assurance Company is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.