M&G Investments is a highly innovative active asset manager investing in €323bn* 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. €40bn* 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 2018 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 2018
INDUSTRIAL: The prospects for logistics look bright, with manufacturing sector confidence running above long-term trends. Demand for logistics space is growing, up 15% y-o-y, as online consumption has led to a structural, rather than cyclical, shift in the market. With vacancy rates across Europe falling to less than 5% in Q2 2018, occupiers are increasingly left with limited options for space. Alongside tightening rental incentives, this should apply upwards pressure to headline rents. We expect the sector to average 2.3% rental growth pa over the next three years, led by the Nordics (3.5% pa on average), Belgium and Spain. Structural drivers including €700bn of transport infrastructure improvements under the TEN-T programme and the restructuring of online cross-border trade under the Digital Single Market initiative should boost the sector further. Given logistics are typically higher yielding, a combination of further compression and increasing rents is likely to deliver above-average property returns in the medium term.
OFFICE: The office sector is undergoing a healthy recovery, with 13 city markets recording rental growth over 2018 to date. Milan (6.4%), Madrid (5.6%) and Copenhagen (5.3%) top the ranking on a cumulative annual basis, reflective of accelerating GDP rates in the Southern European and Nordic economies. With future net additions forecast to be just 1% of stock pa over the next three years, upwards pressure on rents is likely to remain in the medium term. Occupier demand is moving from strength to strength, with technology, media and flexible office providers comprising an increasing percentage of the market. Vacancy rates in a number of CBD markets have dropped below 5%, including Paris, Stockholm and Berlin. We expect rental growth to reach 2.9% pa over the next three years lead by Stockholm, Berlin and Madrid (over 5% pa). With prime office yields at historic lows in a number of markets, income return and rental growth are likely to be a key driver of future returns.
RETAIL: Following a quiet first quarter, rental growth in the retail sector accelerated in Q2, led by Paris (6.8%), Prague (5.0%) and Madrid (3.7%). Record forecasts of arrivals in established tourist destinations should continue to deliver healthy growth, with consumer sentiment across much of the Continent running above historic averages. Tourism remains a significant contributor towards Europe’s consumer catchment, with international arrivals growing by over 5% y-o-y, supported by a record influx from Asian markets, especially China. Overall, supply-constrained high streets or food anchored and destination led retail supported by affluent local demographics are likely to continue outperforming throughout this cycle. We expect rental growth of 1.9% pa over the next three years, for the combined retail shop, retail warehouse and shopping centre sectors in Europe.
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.
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 Investments are business names of M&G Investment Management Limited and are used by other companies within the Prudential Group. M&G Investment Management Limited is registered in England and Wales under number 936683 with its registered office at Laurence Pountney Hill, London EC4R 0HH. M&G Investment Management Limited is authorised and regulated by the Financial Conduct Authority.
News from M&G Investments [Real Estate - Europe]
M&G Real Estate to fund Ballymore’s Three Snowhill in the largest ever city centre office development outside London download
M&G Real Estate is to fund the construction of Ballymore’s Three Snowhill, a 420,000 sq ft office development in Birmingham city centre.
M&G Investments launches the first institutional fund to invest in European long lease property download
Maiden investment of €100 million across two deals in Portugal and Belgium
Pension funds continue to seek bond-like, inflation-linked returns from long lease property
Landmark office development designed by world renowned architects Foster Partners
• Latest acquisition brings core European strategy to over €1 billion• Acquisitions since March total circa €360 million
News from IPE Real Assets
Greenfields to build 850 homes for Essex following funding deal
Investment manager assessing liquidity levels prior to a Q4 reopening
Investment manager follows moves by Aviva Investors, Standard Life
Portfolio includes assets in health, transport and security sectors
UK pension fund selects asset manager for £104m portfolio
White Papers / Research from M&G Investments [Real Estate - Europe]
With the built environment responsible for almost 40% of energy consumption in the EU,1 real estate investors around the world are increasingly committing to more sustainable practices. Our study evidences that a portfolio of certified buildings experiences relatively higher operating expenses, but can also generate higher rental income and higher cash flows for distribution to investors.
As growth in the European economy continues to broaden out across the region, we anticipate growing demand from institutional investors to not only secure attractive income in a low-yield environment, but to protect the real value of those returns over the long term. Inflation linked assets that may help cushion returns against interest rate rises continue to attract investor interest, helping secure protection against changes in the economic climate.
Economic growth in the Eurozone has softened in 2018 with trade uncertainties, but a number of macro tailwinds should support steady momentum going forward. GDP grew in Q1 and Q2 by 0.4% and 0.3% respectively, down from the 0.7% quarter-on-quarter growth seen over the second half of 2017.
Paris and Berlin, both advanced providers of urban transport infrastructure, hold onto their 1st and 2nd positions, Stockholm climbs to 3rd, and Helsinki joins the top 10
UK Real Estate Market Outlook download
The start of 2018 saw a slowdown in the UK economy, with real GDP growing by only 0.2% over the first quarter. The arrival of the so-called “Beast from the East” storm in March, bringing construction to a standstill and deterring consumers from hitting the shops, contributed in part to this lacklustre expansion.
Analysis from IPE Real Assets
After a disastrous year for UK retail, Mark Faithfull asks whether predictions of plunging shopping-centre valuations will finally materialise and reflect the upheaval in the sector
The core open-ended fund market in Europe appears to have gained renewed momentum. Richard Lowe asks why the market has entered race mode
There is more to the UK than just London, as developments in Birmingham and Manchester go to prove
The Brexit vote gives new entrants to the debt sector a further opportunity to build loan books, as traditional lenders regress, writes Russell Handy
Dutch pension funds are having to think carefully when it comes to new real estate investments. Rachel Fixsen talks to some of the country’s leading funds