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M&G Real Estate launches UK property strategy for international institutions

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M&G Real Estate has launched a UK property strategy for international institutional investors.

 
The GBP580m strategy is based on an existing UK property strategy, which has been managed for UK pension funds since 1971, and is currently managed by Dermot Kiernan.
 
According to Kiernan, UK commercial real estate has become far more attractive to overseas investors following the depreciation of sterling against a range of currencies since 2007.
 
“The US dollar and the euro have both strengthened against sterling by 20 per cent, while the yuan and the Singapore dollar have appreciated by even greater amounts. UK property values are still about 30 per cent below their peak, so the weaker pound offers a double discount,” he says.
 
Besides the heavy discount from 2007 prices, UK commercial property has multiple attractions for long-term institutions seeking income-friendly lease structures. Historically the UK has also had a low correlation with other markets.
 
Encouragingly an improving outlook for economic growth in the UK in addition to a significant decline in new construction over the last few years also indicates good rental growth coming through in the medium term. Currently, relatively high income returns are available, with equivalent yields in the UK averaging more than seven per cent according to IPD.
 
Kiernan adds: “As the global economy slowly regains its footing, investors aren’t as nervous about moving up the risk curve. This, coupled with property’s relative value against some other asset classes, is putting good secondary assets back on the horizon for those willing to take on additional risk for extra return. This is in line with the strategy’s objective to acquire good secondary properties to complement the existing core portfolio. These assets offer a discount relative to prime assets – often because of shorter leases – but are otherwise fundamentally strong in terms of re-letting and active management potential. We’re particularly keen on the office, industrial and residential sectors with a bias to the South East and strong regional cities where the supply of new space is most constrained.”
 
Alex Jeffrey (pictured), chief executive, M&G Real Estate, says: “This development is an excellent demonstration of the future direction of M&G Real Estate. We have reviewed a well-established strategy with a very credible 40-year track record to ensure its structure is attractive for international institutional investors. This news also follows our business formally rebranding as M&G Real Estate which became effective this week.”
 
M&G Real Estate was advised by Berwin Leighton Paisner, Hogan Lovells International and Arendt & Medernach.
 
Formerly known as Prupim, M&G Real Estate is the real estate investment management arm of M&G Investments. 

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