Investors poised to take advantage of marketplace

After the banking crisis of September last year, 2009 was always predicted to be a challenging year for property, but perhaps one in which opportunities for investors would start to emerge.

There are currently several investors poised to take advantage of the situation. The likes of Hansteen, M7, HSBC Special Investment, Pacific Investment and Frogmore are all in the market for portfolios of over £100m.

Having spent the last seven years in mainland Europe setting up a network of offices in Luxembourg, Paris, Berlin and Budapest, and acquiring 1m sq m of logistics assets, Industrial Securities (IS) announced in March 2009 that it too would be actively looking to invest up to £200m back in the UK market. However, like so many of its counterparts, IS has not as yet signed on the dotted line.

There are currently several viable opportunities in the market place, such as, Valad Property’s ‘TAP’ portfolio, the ProLogis ‘Verde’ portfolio and until recently, Ernst and Young’s Industrious portfolio. Since the beginning of the year we have run our slide rule over most of the large secondary industrial portfolios that have come to the market. We have made bids on several but, like most opportunistic investors we have been unable to close the gap between the number that works for us, and the number that meets the vendor’s expectations.

There has, of course, been some activity in the last six months. Perhaps most notably, Rockpoint’s joint acquisition with Anglesea Capital earlier in the year, to purchase the £140m portfolio from Scottish Widow, to bolster Rockpoint’s existing Fusion portfolio and Max Property’s recent acquisition of the coveted Industrious portfolio for £232.1m.

There has also been particular activity from high net worth individuals making prime distribution investments at yields of 8 to 9 percent. Yet the fact that so few deals have actually closed demonstrates to us that recovery is still a long way off.

Whilst it is apparent that prime yields have moved significantly since the beginning of the year, we are of the view that the UK secondary industrial market remains in ‘free fall.’ This is due to difficulties in funding short income, concerns over negative rental growth, and increasing voids. In ISs view, these factors are unlikely to change in the short term, and indeed could worsen as desperate landlords let space at any price, and UK lenders decide to clear out distressed assets as their balance sheets slowly start to improve.”

Across the water in mainland Europe, where IS has a gross annual rent roll in excess of €54m, the picture is slightly different. The downward pressure on rents over the last 12 months has been less pronounced than in the UK, although certain CEE markets, such as Hungary, have seen rents fall by as much as 50 percent due largely to an oversupply of logistics space.

In capital value terms, Europe has also not seen the dramatic falls as witnessed in the UK. This is largely due to the fact that the core locations are not oversupplied with new stock, and the stability packages introduced by various European governments have limited the failure rate of SME’s.

In summary, the picture is ‘patchy’ and confidence is fragile. If the UK market peaked in 2005 and Europe in 2007, then from our experience of the early 90s, tangible recovery in the UK will not occur until 2012. In Europe however, it’s difficult to be that precise. IS however retains a pan European perspective and is well placed to react when the it feels that the time is right.