Schroder European real estate investment trust (Reit), which invests in European growth cities and regions, says it has about €50m (R910m) for investment in further portfolio diversification.
In its 2022 financial results, the company said it expects to see an improving pipeline of investment opportunities over the next six to 12 months.
The company expects rental affordability and the manager’s local multisector expertise will be increasingly important to retain occupiers, grow rental income and deliver shareholder value.
“Our portfolio has remained resilient despite a challenging operating environment, and we are looking at new investments to take advantage of correction in pricing of assets,” Jeff O’Dwyer, fund manager for Schroder Real Estate Investment Management, told Business Day.
He said that the company is looking to buy industrial, retail (DIY) and grocery as well as office assets in the €20m-€30m price bracket in France, Germany and the Netherlands.
“Our focus is on growth cities in terms of population and GDP as well as submarkets with good transport and infrastructure network where we will be able to charge affordable and sustainable rentals,” said O’Dwyer.
JSE-listed Schroder, which also has assets in Spain, acts as a rand hedge for SA investors who want exposure to European commercial real estate.
O’Dwyer said that with markets softening and debt becoming more expensive and less available for some, Schroder expects to see more suitable investment opportunities. “Having equity and operating in markets where we have local and proven expertise, puts us in a strong position to successfully borrow, underwrite investments, implement business plans and provide execution certainty to vendors.”
He said that activity in the investment market had slowed due to pressure on asset prices. Sellers are reducing their pricing 10%-15% compared with nine months ago.
The European office market had performed well as banks were not lending to speculative developments so supply is limited, said O’Dwyer. In submarkets such as Germany’s Stuttgart, vacancies are just more than 1% due to tight supply.
Vacancies are low in A-grade offices considered top drawer, he said. When making acquisitions, a consideration is what can be done to improve the asset.
“Occupiers continue to take up space in high quality office buildings to attract and retain talent and execute their new workspace strategies,” he said.
There is still strong occupier demand in the eurozone’s logistics warehouse market due partly due to companies ensuring their supply chains are more resilient by holding more stock and further adjusting to faster delivery modes.
Schroder expects prime logistics rental growth in the eurozone to slow from 4%-5% annually to 2%-3% in 2023. The development of new warehouses under construction will also limit rental growth.
Up to September 30, Schroder’s direct portfolio was valued at €218.7m — a like-for-like increase of 3%, or €7.6m. The company acquired two assets for about €10m and signed 14 new leases at a weighted unexpired lease term of 6.1 years.
Loan-to-value (LTV) was 29%. Schroder said about 33% of its debt expires in 2023. The company is speaking to lenders about these loans, and expects increased financing costs to be offset by rental indexation.
Special dividends of about €12.8m, reflecting 9.6 euro cents per share, were paid as a result of the exceptional asset management profits achieved from the repositioning of Paris Boulogne-Billancourt.
The board has elected to continue with the €1.85 quarterly dividend while the share price continued at a discount to net asset value of about 35% on November 28.
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