Realcast: Office ‘strandings’, CEE scrutiny, sheds shown in Munich, France in focus

In the headlines this week:

Looking at the broader economic picture, as expected, the Bank of England raised interest rates last week, and in the US, bank Pacific Western saw its share price fall 30%.

In the UK, The Financial Times looked at “stranded assets”, a term that we are hearing more frequently to describe obsolescence, and a malaise that’s increasingly facing UK commercial property investors, particularly in offices – at 9%, vacancy rates are at their highest level for nearly 10 years as flexible working habits have become the norm. However as CoStar figures reveal, two thirds of vacant office space is more than 20 years old in the UK

This is likely to be a big topic of conversation at the forthcoming UKREIIF (the UK’s Real Estate Investment and Infrastructure Forum) in Leeds this week. Mayor of West Yorkshire Tracy Brabin, who will lead a delegation there, has said that devolution of powers and funding to the region needs to change dramatically.

More widely, there is still an appetite for office investments and Nordic private equity firm NREP has invested in the Norwegian office market for the first time.

Meanwhile, residential remains a dominant theme. Notably, Middle Eastern alternative investment manager Rasmala Investment Bank has announced plans to build a UK residential portfolio with an investment value of more than $2 billion.

While Cityscape Global has launched its major event of the year to be held in Saudi Arabia in September, last week was PropertyWeek’s Resi Awards at which M&G won the Asset Manager of the Year Award. Moda Living won the health and wellbeing award and Grainger was voted landlord of the year.

In the newsline in the last week, CEE investment volumes declined by 57% in the first quarter of 2023 compared to Q1 2022 according to Colliers, although the region did better than the overall European result, a decrease of 62%. Poland secured half of Q1 2023 volumes, followed by the Czech Republic with 31%.

A report from Knight Frank has revealed that tertiary education institutions have been expanding space in London at an unprecedented pace over the past year – take up has been almost 20% above the annual long-term trend – and they are currently searching for almost half a million sq ft of space, the highest ever on record.

And, among recent deals, London-headquartered developer/investor General Projects and investment management company Neo Capital have jointly acquired Liverpool’s Royal Albert Dock from CBRE Investment Management for about £40 million.

Last week also saw the Transport Logistic show staged in Munich, during which Buck consultants published a report that predicted a surge in demand for industrial space owing to the boom in demand for electric vehicle batteries.

Real Asset Insight’s investment briefing at the Munich show looked at the future of logistics real estate, with a panel that included CTP, Cushman & Wakefield, Swiss Life Asset Managers, Garbe, Verdion and Zalando.

And at the Real Asset Insight briefing on France, staged at Taylor Wessing’s London office, the audience heard that transaction numbers have dropped as in most countries. But there is hope, particularly because of the return of international investors, especially from Asia. For example, South Koreans have invested heavily in France, especially Paris, and both Middle Eastern and Israeli investors have been evident.

The luxury end of the market, whether residential or retail, has come back in France as has hospitality, but there is increasing polarisation in the market with demand strong for high-end offices in central Paris, for five-star hotels and also for ESG-compliant assets and senior housing. Taylor Wessing also presented its Passport to France, a guide designed to help investors to get to grips with the market and avoid making mistakes.

Meanwhile, zoning is an issue for stranded assets with little imperative for local authorities to permit changes of use because it means they could lose revenue if offices are converted to residential, while additional infrastructure would have to be provided, such as more schools.

Click on the video to see the full discussion or listen to the podcast below.