Sirius Real Estate which has been operating solely in Germany since listing in 2014 recently entered the UK market through acquiring BizSpace, a flexible workspace provider, and sees enormous growth potential in both markets.
A leading operator of branded business parks providing conventional space and flexible workspace in German, Sirius is listed on the main market and premium segment of the London Stock Exchange and the main board of the JSE.
Sirus owns and manages 76 assets in German cities including Berlin, Hamburg, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich with secondary markets in select key border towns where it sees value. In the UK, the company owns 72 assets.
Its tenant base includes multinational corporations, government agencies and small to medium enterprises. In November 2021, Sirius acquired BizSpace in the UK for £245m. BizSpace offers light industrial, workshop, studio and out-of-town office units to a wide range of businesses across the UK.
CEO Andrew Coombs spoke to Business Day about the company’s growth prospects in Europe after its foray into the UK market.
Talk briefly about Sirus?
Sirius listed at R4.50 on the JSE in December 2014. The shares have traded at a premium to net asset value (NAV) for several years since then, and currently trade at a 25% premium to NAV.
We value the support from our SA investors including Old Mutual, Ninety One, Allan Gray, Stanlib, 361 Asset Management as well as high net worth individuals who have always believed in the business. Growth has been a combination of organic and acquisitions.
In April, we converted to a real estate investment trust (Reit) and we are no longer subject to UK corporation tax on rental income and profits on asset disposals. Our Germany portfolio has continued to drive strong leasing growth, enabling Sirius to record its eighth consecutive year of like for like rent growth above 5%.
What was the rationale for buying BizSpace and entering the UK market?
BizSpace is a provider of regional flexible workspace, offering light industrial, workshop, studio and out-of-town office units to a wide range of businesses across the UK. However, there is limited supply and growing demand for these assets that even badly managed assets within this space are doing well.
The business offered us a lucrative opportunity which enabled our strategic entry into the UK. Since acquiring the business, like-for-like rents rose 7.5% to £45.1m in the first four-and-a-half months of ownership.
Where are your assets located in the UK and why this location?
Outside city centres and closer to where people live and this is where we see growth particularly as most of our tenants are local businesses. We’ve seen a huge shift towards the outskirts of the city and we think many companies are also following this trend wanting to be closer to their employees and customers. The office market on the outskirts of the city is very strong. In these locations, tenants enjoy having a front office which enables the speedy delivery of food for example, as opposed to a block, and that’s the added benefit of the properties outside the city centres.
Have you considered SA?
SA is not on our radar and its unlikely we will consider Poland in Europe for example, due to lack of mass and liquidity. We would rather be in two or three geographies that we know well and can extract value for our shareholders. The UK has good proximity to our other assets and it has a sophisticated property market.
What drives demand for industrial property in both Germany and the UK?
Global supply chain challenges, Brexit and e-commerce growth resulted in increasing demand for space with the UK experiencing serious shortage of available space to meet growing demand. In Germany, nearshoring, which means bringing manufacturing and other critical elements of supply chains back closer to the markets in which end products are sold, is increasing.
The industrial sector has been defensive throughout the pandemic particularly logistics, warehousing and distribution with relatively stable occupancy and limited rental reversions. Sirius has the ability to create the spaces to meet tenant requirements in locations of their choice, increasingly moving away from city centres to edges of towns and near logistics hubs.
Are you going to buy more assets?
Definitely, we are always looking for quality assets. Over the past year, our business model has proven its resilience, and growing amid a challenging market environment and we expect this growth to continue.
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