M&G Investments is an innovative active asset manager investing €358bn across fixed income, equity, real estate and multi-asset strategies in the UK, Europe and Asia. M&G Real Estate manages over €44.5bn in assets and employs c.280 people across 12 offices globally, as at 30 September 2022. M&GRE invests through a range of long-established core real estate pooled funds and bespoke strategies through separate accounts and joint ventures. Our investment-led culture focuses on the delivery of long-term returns through targeting and proactively managing assets with sustainable, growing income streams, enabling us to successfully diversify our investor base.
Through our range of pooled funds, segregated mandates, and joint ventures, investors have unrivalled access to compelling investment solutions in global real estate and real estate finance. We offer senior and mezzanine debt across the UK and continental Europe, either on a standalone or combined basis, making us one of the few asset managers to offer a directly originated, ‘one-stop’ solution for borrowers.
We help investors achieve better outcomes by accessing superior investment opportunities and strong risk-adjusted returns. We aim to have a positive impact on society and our ESG investment team play a fundamental role in ensuring this. Using our resources to enrich the lives of people and communities by creating world-class places to live and work. We are committed to achieving net-zero carbon across all our real estate assets by 2050. In 2022, over 75% of our assets under management received a four-star or higher rating in the Global Real Estate Sustainability Benchmark (GRESB) survey.
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 plat- form, 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.
INDUSTRIAL: The logistics occupier market remains in good shape, though moderation and repricing is set to continue into 2023. Following record low vacancy rates and double-digit rental growth observed through the last year, repricing for the sector has already been somewhat sharp as inflationary and interest rate pressures begin to bite. Long-term fundamentals of the logistics sector remain robust as e-commerce growth continues – particularly from relatively low bases across continental Europe – and occupiers focus on strengthening their supply chains and near-shoring. A cooling economic outlook, however, will create a drag on the occupier market as consumer spending moderates. Development activity is expected to slow amid higher build costs and the rising cost of debt, further constraining the supply of prime logistics stock. This supply and demand imbalance should prove favourable to rental growth for prime assets.
OFFICE: Given the weaker economic outlook and falling business sentiment, expansion plans for some businesses are slowing. Occupier demand remains focused on prime, ESG-compliant, high-quality office space across most European markets, particularly as occupiers look to retain staff whilst also aligning their corporate and property strategies towards sustainability targets. The supply of prime office stock remains low, and any rental growth prospects in the sector are limited to best-in-class offices in supply constrained core markets. We expect increasing polarisation by quality, with vacancy rates rising gradually, particularly for poorer quality stock. The rise in operational costs for occupiers, particularly given higher energy costs, is also expected to place further downward pressure on rents for secondary offices.
RESIDENTIAL: The living sector continues to showcase defensive characteristics and a relatively robust resilient outlook. Following strong growth in 2022, we expect moderating but elevated rent increases moving forward. A downside risk relates to the stretching of household incomes as rents and other prices rise. Given rising energy prices, rental growth outperformance will likely occur in energy efficient stock. Rising interest rates are making obtaining property finance more expensive and difficult, and this is expected to drive more house- holds towards the private rented sector. Vacancy rates are low across Europe and will likely remain so, particularly as construction activity levels are also expected to stay relatively muted, given the rise in development finance costs and higher material prices. Alternative living sectors underpinned by strong fundamentals – such as student housing, senior living and single-family rental – are set to see further investor interest moving forward.
RETAIL: High inflation and economic slowdowns across Europe are set to limit any growth in discretionary consumer spending in the short to medium term, adding further strain to retail occupiers. Rental growth is likely to come under pressure, especially as mass-market retailers operating on tight margins face multiple cost pressures. Supermarkets and grocery retailers, given the non-discretionary nature of the goods they sell, should prove defensive and more able to pass on higher inflation to consumers. A renewed focus on operational profitability means high street retailers will increasingly turn to omnichannel (both physical and online) models to maximise revenues. Given their higher starting point, shopping centre and retail warehouse yields could see a relatively more limited outward move in the coming 12 months.
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 85% 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+.
M&G Real Estate funds are GIPS compliant, but the performance is not GIPS verified. They are also in line with INREV standards.
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 individual 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.