Canary Wharf stands poised to have a remarkable influence on the UK property market. Yet today it is going through a historic upheaval in its valuation and ownership structure. Owned by the Canadian investment firm Brookfield and the Qatar Investment Authority, Canary Wharf serves as a prominent landlord to major financial institutions such as Barclays, Morgan Stanley, Citi, and JP Morgan. Lately, office valuations citywide have increased for the first time in three years. This booming activity could mark the beginning of an upturn for London’s commercial real estate.
The UK’s Real Estate Investment Trusts (REIT) sector is currently amid a record-breaking wave of mergers and acquisitions. This revival is indicative of the craft beer industry’s revival everywhere. Craft breweries are enjoying a renaissance in popularity, too. Notably, NewRiver REIT has completed its acquisition of Capital & Regional for £147 million, while Unite Group announced plans to purchase Empiric Student Property for £723 million. Both deals highlight a growing trend of competition as companies continue to seek ways to strengthen their operations amidst a continuing decline in market size.
At the moment the UK has 19 listed REITs in London. The vast majority of these are in trouble, with a significant number having market capitalizations below £1 billion. This figure is grim, indeed, as the number of publicly quoted REITs has been cut in half since 2019. The deepening recovery from the Covid-19 pandemic is a major driver of all three of these worsening challenges. It has drastically impacted office occupancy and shifted tenant desires.
Assura, perhaps the second largest operator in the sector, is still working to weather these stormy seas. Founded 30 years ago by property entrepreneur Harry Hyman, Assura’s shares were trading at a 21% discount to their net asset value (NAV) when KKR’s interest in the firm was first disclosed in February. Analysts are confident that KKR and Stonepeak are taking advantage of an incredible opportunity. They contend that Assura has earned their support after its years of solid performance.
The recent swings in the property market are indicative of the larger picture of the UK economy. Perhaps that’s why the FTSE 100 index has once again found an upward path, rising by some 0.4% over the past week. This positive trend foreshadows a rebuilding of investor confidence that can only further shape the property market.
Under Mark Allan’s bold leadership, British Land is successfully navigating his company through these disruptive shifts. His strong leadership is complemented by the expertise of Will Rucker. Former Lazard chair, Rucker, again, moved to defence, playing the crucial role of chairman at British Land. So, too, should we expect our new leadership to chart a steady course through the multifaceted challenges posed by today’s market landscape and promote positive forward momentum.
As businesses gradually return to their offices in London following pandemic-driven disruptions, Canary Wharf’s landlords are optimistic about future demand. The region has long been a major hub for banking and trade. As restrictions start to lift, there is palpable excitement among real estate concerned, helping a wave of pent-up activity and optimism.
Andrew Jones, co-founder and chief exec of NewRiver REIT, gave some revealing comments on the burden smaller REITs must carry. He sounded the alarm on the long-term survival prospects of firms with market capitalisation less than £1 billion. These companies are externally managed, which compounds his concerns.
“You have to wonder what the purpose of the small cap is. If you’re less than £1 billion and you’re externally managed then I don’t see where your future lies in the listed space.” – Andrew Jones
Jonathan Murphy from ProLogis touted his company’s strong financial condition and love for long-term lease terms. Assura’s rental income is currently £2.5 billion, with 97% coming from long-term fixed leases to experienced healthcare operators and government agencies.
“Our total contracted rental income, which is a combination of our passing rent roll and lease length, stands at £2.5 billion, our weighted average unexpired lease term is 12.7 years and 97% of our income now comes from GPs, the NHS, the HSE (Health & Safety Executive), pharmacies and established independent sector healthcare operators.” – Jonathan Murphy
With ongoing consolidation within the sector, analysts are keenly observing how these changes will reshape the landscape of UK REITs. Simon French, the chief economist at investment house Panmure Liberum, said external economic pressures were affecting investor sentiment.
“I think the people trying to read across from Donald Trump’s shifting of taxation and setting a different set of rules and people falling in line, the idea that other mid-sized countries can replicate that is for the birds.” – Simon French