INDEPENDENT real estate investment manager 90 North Real Estate Partners LLP (90 North) sees growth opportunities in the UK property sector despite its challenging housing market and Brexit conundrum.
John Yeend (pic), the real estate firm’s UK partner and head, believes that investors that are looking to invest for the long-haul, stand to benefit greatly from the United Kingdom’s property market.
“In terms of what’s happening in the occupier and capital markets in the United Kingdom, they’ve been quite steady in the last two-and-a-half years,” he tells StarBizweek during a meeting with Malaysian investors earlier this month.
“We’ve seen rental growth in the office and logistics markets. We’ve seen property prices and yields remaining quite stable and we have also seen consistent investor demand, including from overseas.”
Nevertheless, Yeend acknowledges that investors have become cautious.
“Having said that, liquidity has reduced and of course some investors have taken a pause. But most of our clients are long-term investors and they can appreciate the long-term attributes of the UK.
“We haven’t seen big price discounts or stress resulting in clear bargains in the real estate market. The only segment that has seen any overt capital falls is parts of London residential. But if you’re a long-term holder of that market, I think you’re okay,” he says.
As for Brexit, Yeend is optimistic that the situation will not deter investors looking to invest in the UK.
“From my own experience, there are plenty of investors eager to invest back into the UK and have faith in the long-term opportunity in the UK once the Brexit situation as stabilised.
“The UK has a sound legal and political system. There’s high transparency and fundamentals such as population growth. It’s the most crowded of the EU and G7 countries. So, in terms of real estate fundamentals, it’s a great place to be.”
90 North targets dynamic real estate markets in global growth cities.
With global acquisitions amounting to US$2bil (RM8bil) to date, 90 North has a diversified real estate portfolio in the UK, Europe, the US and Australia that includes modern office, retail, student accommodations, residential, hotel and leisure accommodation.
“Everything that we do is Syariah-compliant. All the underlying occupier uses of the whole building are Syariah-compliant and so is the structuring around it,” says Yeend.
The company has closed 37 transactions in six successive years. Yeend says the firm is targeting US$5bil (RM20bil) assets under management within five years, working with a combination of global investors and strategic investment partners.
“We seek investments with both defensive qualities, let on long-term leases to global brands including Lenovo, Siemens, GE, the FBI, Volkswagen, Asics and Danone in good locations, as well as opportunities to add value,” Yeend says.
“We’re also working on an Australian hotel development opportunity in the Gold Coast, Australia, following a successful hotel acquisition last year.”
Among its more high-profile Malaysian clients is retirement fund Kumpulan Wang Persaraan (Diperbadankan) (KWAP).
“We’ve been working alongside KWAP for a few years to look at opportunities both in Europe and the US. As part of their strategy, they’ve concluded that UK student housing is an attractive market as a long-term investment.
“It’s a specialist area for myself and 90 North. We call it purpose-built student accommodation (PBSA) in the UK and the two real drivers are student mobility and the demand for better and specialist accommodation.”
Yeend notes that the issue of mobility is both a national and international agenda today.
“It’s a trend that’s growing and there is a need for students to study in different countries. The UK is only second to the US in terms of a destination for international students.
“In the past, students in the UK used to study in facilities within their own hometowns. But today, many are studying far away from home, so that mobility means there is a need for accommodation.”
He points out that the number of the number of academic students within the UK has grown exponentially over the years.
“We’re now up to 1.8 million full-time students and 23% of those are from overseas. Universities have not been able to keep up with this growth. With their capital projects, they have to build academic space for arts and sports. Yes, they do build their accommodation on campus, but it’s not enough.
“The private sector now supplies the same amount of housing as the university sector and it has to be owned by somebody and that’s where the institutions come in.”
Yeend says 90 North acquired a 360-bed portfolio of PBSA for KWAP as they made their UK student housing debut last summer.
“The acquisition consisted of The Mill House in Edinburgh and 800 Bristol Road in Birmingham. Edinburgh was newly built in 2017 and provides 257 beds, gym, common room, games room and laundry. Birmingham was built in 2016 and provides 103 beds, cinema room, dinner party room, gym, study rooms, laundry and club lounge.
“Both assets are fully operational and fully let for the 2018/2019 academic year. Both assets provide a running yield from day-one,” he says.
Burgeoning logistics sector
Looking at the UK’s property market trends, Yeend says there’s projected demand for nearly 20 million sq ft of logistics space in the country in the next five years.
“Technology’s improved in terms of logistics of delivery - from the retail units to warehouses. So whilst demand for traditional retail has shrunk, there has been a big growth for logistics.
“Companies like Amazon and other big logistics firms need to deliver within the day or within a few hours and they need to be located close to consumers; close to the transport nodes and close to the labour force.”
Historically, Yeend notes that yields for the logistics property sector have always been low.
“Where we act for investors, we’re looking at this sector and one can debate where the value is because yields have come down so low. Logistics is a long-haul investment for occupiers and investors. Entering it today would be more of long-term rather than near-term income.”
Yeend adds that the office property sector is another favoured investment choice.
The office market is still robust and professional investors have always liked this segment. We have invested heavily in the office sector in the United States and the United Kingdom,” he says.