Strategic move

Brexit has done nothing to lessen Union Investment’s appetite for the UK real estate market. In the run-up to and after the Brexit referendum in 2016, office assets in London and regional cities continued to beckon and the company invested some £1.2 billion (€1.4 billion) in expanding its portfolio in the UK until the country left the EU in January 2020. The investment manager is also active in the Irish market, where it has recently set its sights on new property segments including residential and logistics in addition to offices and hotels. The company’s new office for the UK and Ireland brings the number of its European presences to five alongside its Hamburg headquarters and regional bases in Brussels, Madrid, Paris and Vienna.

The trio appointed to launch Union Investment’s London office for UK & Ireland are Miles Skinner, Head of Transactions; Jacob Thompson, Investment Manager; and Peter McNamara, Senior Asset Manager (UK). A fourth team member, Jack Winsley, joined in August 2022 as Senior Asset Manager (IRL). All four have cut their teeth in the UK property market and knew their new employer well prior to joining. “Union Investment’s brand and reputation in the UK market are very strong. They have built an excellent track record here as a reliable and credible investor,” Skinner says.

The value of having a London office became apparent during the Covid-19 pandemic, Christiane Bührsch, Group Head of Asset Management Europe I at Union Investment, says: “In Paris, we already had an asset management and investment management team on the ground, which turned out to be quite an advantage in helping our tenants cope with the lockdowns and restrictions. A close relationship with our tenants has become more important now than ever. Having a local branch and network also opens doors; it offers new opportunities and lets us take on a bit more risk.”

Union Investment is keen to move up the risk curve in the UK

The new London office comes at a time when the market is adjusting to changing conditions, adds Adam Irányi, Head of Investment Management Offices Europe. “The timing is very good. It is of crucial importance to have local experts who can be our eyes and ears on the ground so that we can react quickly and make well-informed decisions with high conviction.”

The company already has a sizeable stable of office and hotel assets in the UK, primarily in London, but also in dynamic regional cities such as Glasgow, Edinburgh, Manchester and Birmingham. The total UK and Ireland portfolio is around £3.6 billion, of which £1 billion is located in Dublin. The company has succeeded in reducing the age of its UK portfolio in all market cycles and the turnover rate of assets is higher than in other countries. Ongoing monitoring of selling opportunities as well as acquisitions will also be a key task for the London team.

Union Investment was looking for people who are deeply engrained in the local market to support its evolution to a more active value-add investment strategy in the UK, Martin Schellein, Head of Investment Management Europe, explains: “We are keen to move up the risk curve and take some letting risk. We are an active, responsive investment and asset manager with the ability to adapt to market circumstances and cycles. Our broad range of funds covering the core and core-plus markets, with lot sizes from around £40 to £400 million, gives us that flexibility.” 

Size and transparency: the UK investment market is globally relevant

Increasingly stringent ESG requirements played a role as well. Union Investment has its own sustainability department and elaborate monitoring systems in place to analyse its portfolio, but there is a growing need to engage more deeply locally with existing holdings to provide a more holistic picture of an asset and its environment. “Every building has its own challenges, and the issues are never quite the same. We also need to understand national differences before we implement new technical measures to achieve ESG goals,” Cathrin Schwartz, Head of Asset Management Europe at Union Investment, says.

Spiralling energy and construction costs coupled with rising borrowing rates and forex hedging costs are not an ideal backdrop to rev up the acquisition machine, or move up the risk curve by developing rather than focusing on standing assets. 

Skinner is confident, nevertheless: “Union Investment has a reputation for being patient and selective and is very much a long-term believer in the UK, even now that it has left the EU. The company has been a net purchaser throughout the cycles, including the pandemic, the referendum and the GFC (global financial crisis). The fundamentals of the UK real estate market remain very strong, and it continues to hold its global relevance thanks to its transparency, liquidity, advanced regulatory and legal framework, talent pool and significant scale.” 

The UK also offers diversification potential because it is not part of the eurozone, he adds. “On the other hand, Ireland, which is a eurozone member, offers the prospect of more attractive returns than the UK in times of increased exchange rate risk.”

Investment in the UK residential market planned

Union Investment has already pursued speculative forward-funding opportunities in the Irish residential market, and the new London team will also be scouring the UK for similar build-to-rent developments. Risk appetite is being dialled down temporarily due to the current economic uncertainties, but the potential to expand into UK residential extends beyond Greater London to secondary cities such as Birmingham and Manchester, Thompson says. “There’s a lot of potential in the build-to-rent sector where we’re now seeing significant rental increases. We like this space as the nature of income is defensive.” 

The retail real estate market has corrected significantly in recent years, also opening up potential repricing investment opportunities as values have declined, notably in change-of-use transformation projects, McNamara says. Maximising the value of existing assets, including offices, is an ongoing process and having access to the expertise of the company’s asset management department in Hamburg is already reaping benefits, he added. “I’m enjoying being part of a much larger, integrated team and speak daily with my German colleagues. It’s been very helpful.” 

Back in the London office the new UK team have done some teambuilding of their own through a shared love of football. But their own sporting achievements set each of them apart: “We have a varying love of the gym – some of us go more than others,” McNamara concludes.

Words by Judi Seebus, photos by Urban Zintel