Pramerica Real Estate Investors is shifting its focus in Europe from the UK to the Continent this year, according to Raimondo Amabile and Andrew Radkiewicz, the firm’s co-heads of Europe.
Pramerica Real Estate Investors is shifting its focus in Europe from the UK to the Continent this year, according to Raimondo Amabile and Andrew Radkiewicz, the firm’s co-heads of Europe.
Major liquid markets in continental Europe will be Pramerica’s hunting ground this year as the firm seeks to capitalise on opportunities arising from the ongoing recovery in the region, Amabile and Radkiewicz told PropertyEU.
‘I’d expect two-thirds of our equity acquisitions this year to be in continental Europe,’ Amabile said. ‘We see opportunities growing in Spain in line with an ongoing improvement in growth, and in Italy where we think there will be a turning point this year in terms of improving business confidence leading to stronger tenant demand which has been very depressed over the last few years. We’re expecting a good year for deal flow and with that an increase in transactions compared to last year.’
Last year, 45% of the group’s €2.1 bn European real estate acquisitions and loan business were in the UK, followed by Germany, with 32% and France, with 5%. This year, the group will look at ‘major liquid’ markets, including the UK, Germany and France as well as Spain and Italy. Overall, Pramerica Real Estate was involved in more than €9 bn of deals globally last year, including disposals.
‘In general, tenant demand drives where we see value growth. We don’t need to take macro bets when the real story is demand-driven in more liquid markets. Our investments are very specific at a micro-level,’ Radkiewicz said.
Big 7 cities
For that reason, ‘Big 7’ offices in Germany are still a hit, according to Amabile: ‘The “Big 7” cities offer the liquidity, the employment growth and the lack of grade A space that make them attractive,’ he said. ‘We would consider development opportunities in cities such as Munich and Hamburg. Outside these “7”, we think the office markets tend to be too illiquid for us.’
Pramerica Real Estate is also targeting retail properties in Germany ‘because there are a lot of consumers’. The group is continuing to acquire retail properties via its partnership with Swedish pension fund AP3 in Germany. ‘We think the opportunity set is greater in the value or needs-based retail offer. We think food-anchored retail schemes are particularly interesting as incomes and spending grow. With low unemployment and low household debt, deflation in Germany is not a worry for us. In fact, across Europe, we see deflation as more of a short-term phenomenon, largely reflecting the fall in oil prices,’ Amabile added.
The group is also interested in residential properties, particularly where ‘there is still a play to capitalise on some of the secondary university cities’, Amabile said. ‘Residential opportunities are also growing in the UK where we see an evolving trend in the demand for multi-family in the major cities.’
Loan business
Last year, Pramerica Real Estate underwrote €750 mln of loans in Europe. Many of the opportunities were in the UK, according to Radkiewicz, and the group has been active in cities such as Birmingham, Leeds and Manchester, as well as London for the past three years. This year, it is turning its attention more closely to continental Europe, including the Netherlands, via its Pramerica Real Estate Capital platform. ‘We’re looking to lend more in the Netherlands this year on retail and residential assets in particular,’ Radkiewicz said. ‘It gives us access to high quality real estate. We underwrote €125 mln of loans in the Netherlands last year, with a greater amount targeted this year. We’d even take on some development risk there – for retail and residential but not for offices. The Netherlands is a real growth area for us, driven by factors such as deregulation in the residential sector.’
Nonetheless, both Radkiewicz and Amabile acknowledge that there are challenges ahead. ‘The biggest challenges today are the access to the right investment, either directly or through partners or debt,’ Radkiewicz said. ‘It’s also important to stick to our guns and to remain disciplined. The biggest challenge is probably marrying up investor demand and mindset with the opportunities out there in a fast-moving market.’
Moving up the risk curve – as Pramerica Real Estate intends to do this year – brings additional challenges, said Amabile. ‘We want to capitalise on the evolution of the market. As the economic outlook improves, we continue to see opportunities further up the risk curve. We increasingly like the core-plus space and have started to look at more value-add opportunities. The trick is not to be pushed into an uncomfortable zone.’
Sara Seddon Kilbinger
Correspondent German-speaking countries