M&G Investments is a highly innovative active asset manager investing in €309bn* across fixed income, equity, real estate and multi-asset strategies across the UK, Europe and Asia. Our property investment arm, M&G Real Estate, is a real estate investment solutions provider managing assets across all major and alternative sectors. We manage c. €37.4bn* of assets (including cash) across the UK, Europe and Asia making us one of the top 30 property fund managers globally (according to PFR/IREI 2019 rankings). Through our range of pooled funds, segregated mandates, investment partnerships and joint ventures, institutional investors have unrivalled access to compelling investment solutions in global real estate and real estate finance. We also 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 at scale for borrowers.

We help investors achieve better outcomes by accessing superior investment opportunities and actively managing each and every building to unlock value and to deliver strong risk-adjusted returns. Through our activities, we can also make a positive impact on society. To this end, our responsible property investment team plays a fundamental role in ensuring we use our resources to enrich the lives of people and communities by creating world-class places to live, work and play. This not only brings beneficial outcomes to our investors, but also to the environment and society.

*As at 30 June 2019

Strategic corporate development 

M&G Real Estate continues to be focussed on the growth and diversification of its third party investor base.

The business is targeting c. £3.8bn of third party capital over the next three years (2019–21). To achieve this the business has invested in the global sales platform and is driving through the development of new products, which should result in an increase of clients and assets under management. The continued growth of its two core flagship international strategies, the M&G European Property Fund (MEP) and the M&G Asia Property Fund plus the M&G UK Residential Property Fund that invests in the UK private rented sector is also key to meeting these targets. The business is aiming to launch a number of new products in the alternatives space to provide investors with solutions that offer diversification and that have a low correlation to commercial property and other asset classes. Building on the track record the business has in the UK private rented sector space, we intend to launch an housing product that invests in shared ownership in the UK in the first quarter of 2020.

A European Living product and Hotels Strategy will also be launched in the first half of 2020. The business has been particularly focused on the growth of the European platform to support the growth of the M&G European Property Fund and will continue to allocate investment and asset management resource in Continental Europe to support the further growth of this vehicle. The business will also recruit additional fund and investment management resource to support the alternatives sector as new products are launched.

Sector forecasts

INDUSTRIAL: The growth of e-commerce in the region should drive demand for logistics space, particularly in Australia, Japan and South Korea. In addition, more logistics occupiers catering to private consumption are seeking better quality space to support increased automation and higher volume of goods. Rents for high-quality and well-located warehouses are thus expected to grow at a moderate pace over the medium term in the aforementioned core markets. Developed APAC logistics real estate could deliver relatively higher returns over the next three years (2019–21) with a total return forecast at around 7%* annually. This is mainly driven by further yield compression as the sector continues to mature and attract more investment interest.
* as forecasted in May 2019

OFFICE: A more digital and knowledge-driven economy is expected to bolster office-based employment in the region. With employees’ wellbeing increasingly important among corporates, there is a growing preference for prime office developments that provide high quality space and amenities. Thus, new prime office assets should provide relative income stability and resilience. Office real estate rental growth should outperform other sectors due to low vacancies and the good management of supply in most core APAC markets over the next three years. Yields are expected to hold or compress marginally as the yield spreads over 10-year government bond yields remain relatively healthy (~300bps) due to a sustained low interest rate environment.

Hong Kong’s prime office market in the Central area, however, is expected to face significant headwinds. Corporate expansion by Chinese corporates – a key demand driver – as well as flexible space operators have been slowing down (even before the current protests began). There has also been active decentralisation among occupiers with the emergence of better quality stock in decentralised submarkets and improvements in transport infrastructure. These trends are expected to persist for the next 12–24 months at least and place downward pressure on rents. Recent and prolonged protests may also push more international corporates to reassess their business plans in the city, potentially driving demand further down. 

RESIDENTIAL: Multi-family residential in gateway cities such as Tokyo is expected to see sustained demand due to population growth and increase in white-collar employment. A tight labour market in Japan has led to the gradual relaxation of hiring policies for foreigners and the rise of dual income households as more women re-enter the workforce. Positive fundamentals for this sector is expected to draw more interest from foreign institutional investors, potentially leading yields to compress further.

RETAIL: Increased complexity in the retail sector, due to the emergence of e-commerce and omni-channeling, is expected to continue impacting the performance of more weakly managed and poorly located assets. A sustained challenging macro-environment could also affect consumers’ confidence. Rental growth for regional retail assets in markets such as Australia and Japan is therefore expected to remain relatively muted in the near term. Further revaluation of assets could also be expected on the back of cap rate expansion. On the other hand, prime retail markets in gateway cities such as Tokyo and Melbourne, as well as suburban shopping centres in densely populated areas, should perform better as they serve as essential marketing touchpoints for retailers.

Investment principles & strategy

Our investment decisions are informed by proprietary forecasts and market insight from an experienced global research team, while our sector specialists add value through active management and close relationships with occupiers. This deep experience and local knowledge of our investment markets and extensive asset management and development expertise help us to identify and exploit market inefficiencies quickly, giving our clients access to a broad range of investment opportunities.

Our objective is to deliver strong and sustainable risk-adjusted returns to our clients. We achieve this through:

  • Adding value through property selection combined with proactive asset management, development and maximising rental income through effective leasing activities. Managing buildings to meet the changing needs of occupiers and higher sustainability requirements.
  • Driving innovation and taking a client-focused, needs-based approach to originating new investment strategies and creative deal making.

We provide commercial mortgages from 0–80% loan-to-value on both development and income producing properties in Western Europe and are one of the few asset managers to provide whole loans at scale, which we hold to maturity for borrowers seeking higher leverage. Investing in real estate debt with M&G provides a number of competitive advantages:

  • Extensive origination platform – our ability to originate loans directly ensures we can structure bespoke covenant packages and allows investors to share in upfront fees received from borrowers, providing attractive economics compared to purchasing loans in the secondary market.
  • Ability to fund large transactions – we are one of few investors able to write large size tickets (up to £400m) for single or portfolio transactions, reducing execution/syndication risk for borrowers.
  • Situational flexibility – capability to invest in various transactions, including refinancing, secondary purchases, primary acquisitions and loan-on-loan, are factors that underpin our success.

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 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.