Union Investment took advantage of the ongoing favourable conditions in the European property markets in 2019 to steadily expand its transaction business and again achieved solid increases in value for its investors in the past year. The company’s open-ended real estate funds for retail customers and institutional investors returned between 1.7 and 3.2 per cent as at the end of 2019.
“In a market environment which is characterised by continuing pressure of capital and increasing risks, reliable returns are a key commitment to our customers. With its focus on sustainable growth, our investment policy clearly reflects that,” said Joern Stobbe, Chairman of the Management Board of Union Investment Real Estate GmbH.
Union Investment successfully completed 28 acquisitions last year, with special attention being paid to the ability of real estate assets to deliver long-term returns. This investment in the commercial real estate sector was divided more or less equally between the funds for private investors (15 transactions) and for institutional investors such as banks, insurance companies and pension funds (13 transactions). UniImmo: Deutschland made the highest number of acquisitions among Union Investment’s funds, with six transactions worth some EUR 890 million. In total, the Hamburg-based real estate investment manager spent more than EUR 2.8 billion on acquisitions, compared to EUR 2.3 billion in the prior year. In addition, 19 properties were sold for a total of more than EUR 830 million, bringing the transaction volume for the past year to approximately EUR 3.66 billion (prior year: EUR 3.0 billion).
“Ten to 50” strategy for smaller properties
While portfolio deals were a feature of the last investment year, especially in the final quarter, Union Investment achieved its 2019 acquisition targets almost exclusively through single-property transactions, comprising 24 in total. The exceptions were two relatively small portfolios, involving two planned hotel properties in Munich and two in Kraków and Katowice, which enabled Union Investment to further diversify its broad-based hotel portfolio. In line with the “Ten to 50” strategy, which puts the emphasis on smaller properties, ten properties and projects each with a deal size of less than EUR 50 million were acquired.
Projects make up almost 40 per cent
As in the previous year, Union Investment also sought to acquire projects at an early or advanced stage of implementation. With total investment of more than EUR 1 billion, Union Investment secured seven projects in the logistics, micro-living and campus property segments. These were acquired directly from the developer. In the case of Y-Towers in Amsterdam, Union Investment took on the role of client and developer itself. The complex will include a hotel, serviced apartments and residential units.
Project acquisitions accounted for around 40 per cent of the total volume and made a substantial contribution to further reducing the average age of the portfolio and enhancing its sustainability, as in previous years. “We have found off-market transactions to be a particularly attractive alternative to structured tendering processes. The latter tie up significant resources and frequently entail sunk costs in this market phase, not just in portfolio transactions,” said Martin J. Bruehl, Chief Investment Officer and Management Board member at Union Investment Real Estate GmbH. “The willingness to enter some markets earlier than other investors, coupled with low capital costs that allow us to bridge even quite long construction phases with low cash flows, gives us a major advantage when competing for high-yield core properties. Working closely with our letting market specialists, we intend to continue driving forward our strategy of active value creation, including with regard to new acquisitions.”
Focus on Nordics and Dublin
In the current market phase, as a pan-European investor Union Investment benefits from many years of experience over several cycles in almost all the major markets. This was demonstrated in 2019 on both the acquisition and disposal side. Examples include Paris, where an exit opportunity was seized in the Bois-Colombes sub-market given more volatile letting prospects. As part of their core strategy, acquisitions were made for the real estate funds in a total of ten European countries. Against the backdrop of a weakening economy in Europe, Union Investment’s acquisitions in 2019 focused on economically stable core markets where demand for space remains buoyant. In addition to Germany, with a total of nine acquisitions across various segments (totalling EUR 680 million), the Nordics played a prominent role with four investments in Helsinki and Stockholm (EUR 300 million), alongside Dublin with three new acquisitions in the office sector (EUR 260 million).
“Value-add to hold”
Another investment focus was Amsterdam, with two transactions worth a total of around EUR 620 million. In Amsterdam, Union Investment implemented its value-add strategy for the first time last year with the acquisition of the Y-Towers development. This strategy is geared towards active value creation through core assets acquired at the project stage with the intention of holding them long-term in the portfolio. This biggest investment of the year, at EUR 465 million, made on behalf of UniImmo: Europa, saw Union Investment deepening its value chain and taking on risk and reward as a developer.
“Stable and in some cases rising capital values make Europe a comparatively safe haven, even with a subdued economy. The strongly growing and undersupplied markets of Europe will continue to play the main role in our growth strategy going forward,” said Martin J. Bruehl. London remains one of those markets. “As the only truly global city in Europe, London continues to see strong demand for space, despite the UK’s imminent exit from the EU. Once the political uncertainties have been resolved, it will offer very good prospects for strong rental growth. For this reason, we are actively preparing to re-enter the market.”
Retail: joint venture deal in Spain
In addition to the main use types of office, hotel and logistics, the strong acquisition performance in 2019 includes four investments for the company’s alternative investment products in the micro-living and urban campus segments, as well as two transactions on behalf of the new UniInstitutional EuropeanM special fund. Notably, Union Investment also increased its exposure to selected European retail markets. The investment in the Puerto Venecia shopping centre in Zaragoza in 2019 marked its re-entry into the Spanish retail market. The investment underlines Union Investment’s interest in dominant destination shopping centres and its willingness to enter into joint ventures. In addition, Union Investment secured a mixed-use property in Helsinki with a 60% retail element. Advantage was also taken of particularly favourable market conditions to sell two retail parks in Austria and a shopping centre in Monza/Italy. These disposals made an important contribution to optimising the retail portfolio.
Positive outlook for the new decade
The company’s successful investment year in the property segment is reflected in the sharp rise in real estate assets under management. Union Investment’s open-ended real estate funds attracted inflows of more than EUR 1.7 billion last year. This strong sales performance, to which both active funds and service mandates contributed, enabled Union Investment to further extend its market-leading position. The profitability of the open-ended real estate funds is underscored by their high occupancy rates. As at the end of the 2019 financial year, the large retail real estate funds had occupancy levels of between 96.3 and 99.5 per cent.
Union Investment regards the outlook for the real estate business as exceptionally good. “The new decade will place increased demands on investors’ ability to develop smart strategies for sourcing properties. At the same time, the demands on asset management are growing with the rise of new work and digital networking,” said CEO Joern Stobbe. “With a combination of reliability and maximum flexibility, we already offer our investors and business partners a compelling and sustainable proposition. We will develop that proposition further in 2020, at senior management level and throughout our entire real estate team.”
Source : Company