More ‘core’ exposure for M&G in Germany after recent euro deals

M&G Real Estate fund management group, which acts as the asset manager in Europe for the giant Prudential insurance combine, is continuing to roll out what it calls its ‘core’ European property strategy by buying a major retail park just south of Frankfurt, following recent similar deals in Italy and Denmark.

The 23,000 sqm property is the well-known Dreieich Nordpark about 10km south of Frankfurt, positioned at the centre of a wide catchment area stretching as far down as Darmstadt. Anchor tenants are the Metro hypermarket subsidiary REAL and Decathlon, which now claims to be the world’s largest sports retailer. The centre attracts more than 2.5 million shoppers a year.

The seller was TIAA Henderson, which had held the property in its HERALD Henderson European Retail Property Fund, and the price paid was €51.9m. The centre underwent a major re-branding and repositioning exercise in 2011-12.

Simon Ellis, strategy manager at M&G said, “With economic growth gaining momentum and the European Central Bank’s quantitative easing programme lending further support to the economy and the real estate markets, we see a very positive environment for continued investment. Prime assets and prices are likely to continue to strengthen, given the limited supply. Investor appetite remains strong for core, well-leased assets of this nature.”

M&G recently released a report suggesting that the European Central Bank’s pump-priming policy should lead to significantly higher inflows into real estate. The ECB’s quantitative easing programme to date has already helped to weaken the euro, driving it to a 12-year low against the dollar and a 7-year low against the pound sterling, with 10-year Bunds at record lows.

M&G’s head of real estate research Richard Gwilliam draws parallels with QE phases in the US and the UK, which led to increased output, higher employment and higher private consumption, and suggests we’re seeing the same thing happen in continental Europe. The weaker currency and positive structural changes to European export industries are particularly good news for rental growth in ecommerce-related real estate such as logistics and distribution hubs, especially in economies such as Germany. “Already cheap European property is likely to be even cheaper for both non-Eurozone European countries and non-European overseas investors.”

The lower yields on government bonds have added to the attractions of property, while investors are more comfortable with lower yields against a backdrop of growth in the economy and expected rental growth, said Gwilliam.