UBS Asset Management (UK) Ltd (Real Estate)

2018 Top 100 Real Estate ranking: 8http://www.ubs.com/realestate

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Corporate overview 

UBS Asset Management’s Real Estate & Private Markets (REPM) business has been investing in real estate for over 75 years, having launched its first real estate fund as early as 1943. Since then, the business has grown steadily, expanding the universe and scope of its real estate investments and adopting a truly diversified business model. On an assets under management basis, the business is one of the lead- ing global real estate investment managers today. REPM’s capabilities include core, value add and increasingly opportunistic strategies on a global, regional and country basis. 

These are offered through open- and closed-end private (unlisted) funds, fund of funds, individually managed (separate) accounts, REITs and publicly traded real estate securities globally. The business actively manages direct investments in the hotel, industrial, multi- family/residential, office and retail real estate sectors, as well as in farmland in the US – a business that specialises in the acquisition, management and disposition of agricultural real estate investments. 

Sector forecasts 

INDUSTRIAL: E-retailing has been a major factor in European logistics in recent years. However, a major part of Europe’s logistic industry is manufacturing related and thus business-to-business (BtoB) and not businessto- consumer (BtoC). The current issues affecting the German automotive industry and manufacturing in general, may act as a drag on the BtoB logistics sector, with occupier demand likely to weaken in line with the fundamentals. This may increase further the appeal of distribution, which is still experiencing record low yields. Investors are mostly focused on distribution assets located close to major agglomerations, as these function best for ecommerce fulfilment and due to intense competition have seen the greatest levels of rental growth. Nonetheless, with interest rates set to remain low for the foreseeable future, we are still anticipating healthy returns which will outperform the European all property average. 

OFFICE: Despite a weakening of the European economy in 2019, fundamentals for the main office markets remain relatively robust. The deterioration of the economy has been almost exclusively driven by challenges within the manufacturing and export sector, whilst the services sector has thus far been fairly resilient. This has continued to deliver solid levels of office-based jobs creation across most markets. Despite the positive demand fundamentals, we still see few signs of a meaningful supply response emerging. Although construction levels have risen in a number of markets over the past few years, much of this is driven by pre-let schemes. Vacancy rates are at historical lows across many markets, and in core central locations there are very few options available to occupiers. This continues to drive positive prime rental growth which will generally exceed inflation levels for 2019. On the investment side, there is still healthy appetite, particularly for core office buildings, however volumes have fallen back in 2019. This is partly because of a limited number of buildings coming to the market, and also the level of pricing which has been reached which has made underwriting increasingly challenging. 

RETAIL: The retail sector in Europe is experiencing a structural adjustment through the growth of online retailing, although the impact of this is unevenly distributed amongst the different countries. The UK is the most advanced, while on the mainland northern Europe has been more affected than Southern Europe. Central and Eastern Europe by contrast has seen much lower growth in ecommerce and is still seeing growth in traditional retail sales. In general, however there has been a rise in vacancy rates and rental growth is generally flat, if not negative. While this is affecting all segments of retail, secondary shopping centres are currently the worst affected while outlet centres, food-stores and high street in dominant towns and cities are more resilient. This has been reflected in investor sentiment, with yields on secondary, more tertiary assets seeing the sharpest outward movement. We believe the market has
yet to find its nadir in Europe; however when that time comes there will most likely be buying opportunities for brave investors. 

GLOBAL: The resilient appeal of global real estate is driven by a number of factors: ongoing low bond yields; the hunt for steady income; the importance of asset diversification; and a need for stability. Unconventional monetary policies in the form of quantitative easing and ultra-low interest rates have, in recent years, boosted the relative appeal of the asset class, whilethe consequential increase in capital flows caused transactions to surge. Moreover, in 2019 monetary policy has switched back to easing, with cutsin interest rates as the economy has weakened. Investment volumes arenow down from their peak but remain in line with long-run averages. This continued strength reflects a reluctance to let go of assets given uncertainty as to how to re-allocate capital attractively. Many markets present a price gap between buyers and sellers, with owners of real estate, even with leverage, generally under no pressure to sell, while buyers are not willing to pay ever higher prices. Total returns globally continue to reduce as a result of reduced yield compression and slowing capital value growth. Constructionis constrained and broadly the supply side response has been muted this cycle, particularly in Europe. In the best locations, this has meant good
levels of rental growth, though returns are now primarily being driven by income. Differentiation in projected total return between markets and sectors is narrowing as the cycle extends. Income returns tend to be quite stable over time both within and across markets, while capital growth can vary tremendously depending on a market’s stage in the cycle. The periodof exceptional capital value growth driven by ultra-low interest rates and excess liquidity has come to an end. Nevertheless, global real estate remains attractive relative to other asset classes in the sustained low rate environment and provides the income and low volatility many investors desire. Lower leverage and less exuberant pricing for lower quality real estate also means the asset class is less at risk than in the last cycle. Returns have certainly reduced but remain in line with the long-term returns one should expect from institutional property. 

Performance verification 

Source: UBS Asset Management, Real Estate & Private Markets; September2019. Past performance is not a guide to future performance.

This publication is not to be construed as a solicitation of an offer to buy or sell any securities or other financial instruments relating to UBS AG or its affiliates in Switzerland, the UnitedStates or any other jurisdiction. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions contained in this document have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any errors or omissions. All such information and opinions are subject to change without notice. Please note that past performance is not a guide to the future. With investment in real estate (via direct investment, closed- or open-end funds) the underlying assets are illiquid, and valuation is a matter of judgment by a valuer. The value of investments and the income from them may go down as well as up and investors may not get back the original amount invested. Any market or investment views expressed are not intended to be investment research. The document has not been prepared in line with the requirements of any jurisdiction designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this document does not constitute a distribution, nor should it be considered a recommendation to purchase or sell any particular security or fund. A number of the comments in this document are considered forward-looking statements. Actual future results, however, may vary materially. The opinions expressed are a reflection of UBS Asset Management’s best judgment at the time this document is compiled and any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise is disclaimed. Furthermore, these views are not intended to predict or guarantee the future performance of any individual security, asset class, markets generally, nor are they intended to predict the future performance of any UBS Asset Management account, portfolio or fund. Source for all data/charts, if not stated otherwise: UBS Asset Management, Real Estate & Private Markets. The views expressed are asof September 2019 and are a general guide to the views of UBS Asset Management, Real Estate & Private Markets. All information as at September 2019 unless stated otherwise. Published October 2019. Approved for global use.

News from UBS Asset Management (UK) Ltd (Real Estate)

  • UBS Asset Management acquires Edinburgh Travelodge Hotel on behalf of its Long Income UK Property Fund

    The GBP 9.4 million deal further diversifies the Fund’s tenant mix, supports its distribution yield and enhances the portfolio’s weighted average unexpired lease term (WAULT) The hotel will continue to be operated by Travelodge on a long-term lease running to 2042 Edinburgh’s hotel market is second only to London in terms of occupancy and RevPAR growth Travelodge is the second-largest brand in the UK budget hotel sector, with more than 500 hotels in Britain

  • Top 10 with Eric Byrne on Multi-Managers Real Estate download

    The multi-manager real estate industry has boomed in recent years. Eric Byrne explains how the Multi-Managers Real Estate (MM-RE) business navigates market changes to provide superior access to investments with attractive fee savings to clients.

  • UBS Asset Management completes acquisition of Milan business campus for EUR 118 million download

    Transaction represents first institutional Club Deal of UBS’s European Club Deal strategy  La Forgiatura campus is a redeveloped former industrial site  100% carbon-free scheme, delivering strong sustainability credentials

  • UBS Asset Management disposes of two City of London assets for GBP 77 million download

    UBS Asset Management’s (UBS-AM) Real Estate & Private Markets (REPM) business announces that, in separate transactions undertaken on behalf of clients, it has disposed of two properties for a combined total of GBP 77 million, at 21 Wilson Street, EC2M and 158-164 Bishopsgate, EC2M, in the City of London.

  • UBS Asset Management acquires 100% interest in leading Portuguese gas distributer, Gascan download

    UBS Asset Management’s (UBS-AM) Real Estate & Private Markets (REPM) business announces that it has completed the acquisition of a 100% interest in Gascan, the second largest distributor and supplier of piped liquefied petroleum gas (LPG) in Portugal, from Arta Capital. The investment was made on behalf of REPM’s global infrastructure equity strategy, with the transaction completed on an exclusive basis after an unsolicited approach to the Spanish private equity fund Arta Capital.

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White Papers / Research from UBS Asset Management (UK) Ltd (Real Estate)

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Head Office
Real Estate & Private Markets
5 Broadgate
London
EC2M 2QS
United Kingdom
Contact
Eoin Bastible Tel. +44-20-7901 5204
Company website:
http://www.ubs.com/realestate
Parent Company:
UBS AG

Associated Companies

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    The GBP 9.4 million deal further diversifies the Fund’s tenant mix, supports its distribution yield and enhances the portfolio’s weighted average unexpired lease term (WAULT) The hotel will continue to be operated by Travelodge on a long-term lease running to 2042 Edinburgh’s hotel market is second only to London in terms of occupancy and RevPAR growth Travelodge is the second-largest brand in the UK budget hotel sector, with more than 500 hotels in Britain

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