Union Investment’s real estate business sees steady growth in 2022 even after interest rate hikes
• Real estate assets under management up 9 per cent at EUR 56.2 billion
• Same growth rate as 2021
• Transactions in 2022 totalled EUR 4.1 billion
• Capital held back for opportunities in new interest rate environment
• Net cash inflows of EUR 4.4 billion recorded
• Further diversification in Europe’s residential and commercial property markets
12th January 2023 I Author Fabian Hellbusch I Reading time: 4 minutes
Union Investment took advantage of the strong capital resources of its real estate funds to continue investing in portfolio diversification and profitability in the past year. In 2022, Union Investment generated net capital inflows of EUR 3.3 billion across its retail and special funds. Another EUR 1.1 billion was raised by the Service KVG business. Based on the continued high level of cash inflows, 28 properties and projects worth around EUR 2.4 billion were added to the property portfolios of the funds for private investors and institutional clients. There were also 41 acquisitions for Service KVG mandates, totalling around EUR 1.4 billion. Compared to 2021, which was a record year for acquisitions (at EUR 7.5 billion), acquisitions were deliberately lower at EUR 3.8 billion. Project acquisitions in particular were scaled back significantly from the second quarter onwards. In addition to 69 acquisitions, the impressive transaction total for 2022 (EUR 4.1 billion) included eight sales with a total value of some EUR 300 million.
“The new interest rate environment and the energy crisis have drastically increased risk in the real estate markets. In order to offer our existing investors stability and steady appreciation even in this period of uncertainty, we deliberately opted for a cautious investment strategy instead of pursuing additional growth. In the case of some opportunities, we intend to wait for the inevitable price corrections in the wake of interest rate rises. By the third quarter of 2023 at the latest, by which time interest rates should have stabilised, we will see a significant drop in prices in most asset classes, which will unlock transaction activity. There are three requirements for seizing the opportunities that arise in the new interest rate environment: capital, decisiveness, and the ability to identify the right time to re-enter the market. We are very well positioned in all three respects.”
Michael Bütter, CEO and Chairman of the Management Board of Union Investment Real Estate GmbH
Growth of assets under management
In the past accounting year, Union Investment further extended its leading position among providers of open-ended real estate funds in Germany. The actively and passively managed assets of its real estate funds rose by around 9 per cent. As at year-end 2022, assets under management thus reached a new record level of EUR 56.2 billion (31.12.2021: EUR 51.7 billion). Despite greater challenges in the markets, the growth rate was exactly the same as in the previous year, when a gain of around 9 per cent was likewise achieved.
The performance of Union Investment’s open-ended real estate funds over the 12-month period increased from an average of 2.5 per cent (31.12.2021) to 3.1 per cent (31.12.2022). Even in an economic environment marked by the pandemic and rising energy and construction costs in the wake of Russia’s war of aggression against Ukraine, the Union Investment open-ended real estate funds thus delivered stable and reliable performance.
Union Investment is optimistic with regard to the next twelve months. “In a changed interest rate environment, there are attractive opportunities to generate returns for all our funds, including through index-based rent adjustment,” said Michael Bütter. Union Investment is also aiming to leverage the performance potential of its real estate portfolios, which comprise around 500 properties. The value-add strategy has been extended to the company’s own holdings, among other measures, and there is now greater emphasis on the company launching its own development projects, including the selective conversion of real estate into mixed-use properties.
Investment focus on residential and logistics
Union Investment used the options arising from cash inflows primarily to continue the strategy adopted two years ago of diversifying within existing asset classes. The open-ended real estate funds focused on European property markets in 2022. Investments are spread across eleven national markets, including the US. A significant proportion of the investments made on behalf of the open-ended retail and special real estate funds was again accounted for by the German market (around EUR 600 million), followed by the Netherlands (around EUR 400 million).
Union Investment continued to place particular emphasis in 2022 on expanding and developing its strategic exposure to European residential property markets, which have a relatively low correlation with commercial markets. The Hamburg-based real estate investment manager secured further residential projects in major European cities worth a total of over EUR 300 million. Union Investment intends to expand its European residential portfolio over the medium term both in existing markets such as Amsterdam, Dublin and Helsinki and in new markets, including the Nordics and southern Europe, and is looking to invest over EUR 2 billion. The logistics sector likewise accounted for significant investment of around EUR 550 million in 2022. The acquisition of Hexagon Kassel also marked the extension of the investment strategy into the light industrial segment.
Southern Europe increasingly the focus of acquisitions again
Union Investment also entered the resort hotel segment last year by acquiring the Autograph Collection by Marriott hotel on Lake Tegernsee. The strategic plan is to build a substantial resort hotel portfolio. In addition to the DACH region, this will mainly involve holiday destinations in Spain, Portugal and northern Italy. In Copenhagen, Union Investment gained access to the Scandinavian hotel market by acquiring the 25hours Paper Island hotel. In addition, the fund company’s acquisition of the Continente Colombo hypermarket in Lisbon in 2022 laid the foundation for further retail investment on the Iberian peninsula in the future. In the office segment, its re-entry into the Spanish market was accomplished when it acquired the Cornerstone property in Barcelona, underlining Union Investment’s ambition to boost its exposure to southern Europe.
“The interest rate hikes, as painful as they may be for many market players, herald the beginning of a new real estate cycle. Our global investment universe and local presence in the key regions around the world provide us with the opportunity to further diversify and rejuvenate our portfolios from a position of financial strength while also boosting their resilience.”
Martin J. Brühl, CIO and a member of the senior management team
For Union Investment Real Estate GmbH
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