Union Investment once again increased assets under management in its real estate segment in the 2023 accounting year. Despite a challenging market backdrop of high inflation rates and the biggest interest rate rise in 60 years, real estate fund assets increased slightly year-on-year by 1.2 per cent to EUR 56.9 billion. At EUR 865 million, net sales also remained positive, although performance was markedly less buoyant than in the prior year due to competition from alternative investment products. EUR 452 million was invested in the Union Investment open-ended real estate funds and special funds marketed in Germany, while the Service KVG business attracted a further EUR 413 million. Net sales across all German real estate funds totalled EUR 2.3 billion in the prior year. The performance of Union Investment’s commercial real estate funds for private and institutional customers over the 12 months of 2023 averaged 3.1 per cent (prior year: 3.1 per cent). “Even during a period of uncertainty, our real estate funds proved to be stable investments and this is set to continue in the future. A tax exemption allows us to offer our investors an impressive and competitive distribution yield that will remain stable over the medium to long term,” said Michael Buetter, Chairman of the Management Board of Union Investment Real Estate GmbH, presenting the results for the year. With assets worth a total of EUR 41.3 billion in its retail open-ended real estate funds and a corresponding market share in Germany of 31 per cent, Union Investment was able to consolidate its leading position among open-ended real estate fund providers.
Occupancy rates in the funds were also gratifyingly robust at year-end, underlining the quality of Union Investment’s real estate portfolio, which has been built up over nearly six decades, and indicating that occupier demand remains intact, particularly in the core segment. Occupancy based on income averaged 95.5 per cent. Strong letting performance also ensured ongoing stable income in the office portfolio. At 92.7 per cent, the occupancy rate here was unchanged from the high level of the previous year. In total, around 387,000 square metres of office space were let or relet by the internal asset management units in 2023. Across all property types, lettings totalled around 1.0 million square metres, generating total net annual rental income of some EUR 244 million for the funds.
In the investment markets, where activity is expected to pick up again from the third quarter of 2024, Union Investment exercised due caution and focused on the few outstanding market opportunities in Europe when acquiring new property assets. These included transactions mainly in more resilient use types, such as European residential properties in Dublin and Amsterdam, and the expansion of the resort hotel portfolio in Germany. Acquisitions totalled around EUR 300 million (four transactions), compared to EUR 2.4 billion (28 transactions) in the previous year. There were also 11 acquisitions worth some EUR 200 million on behalf of the Service KVG mandates.
Successful sales programme boosts performance
In 2023, Union Investment placed special emphasis on realising sales profits. Sixteen properties were sold by the retail and institutional funds in Germany, Austria and Singapore, with sales proceeds exceeding the expert valuation in nearly all cases and generating some significant performance contributions. Disposals (total value: EUR 1.2 billion) also helped to create additional liquidity buffers, which Union Investment intends to use to take advantage of suitable market opportunities for further portfolio diversification. Acquisitions will be made in resilient use types, such as logistics, hotels and European residential, and in smaller properties. Where the appropriate opportunities arise, Union Investment also plans to invest again in properties that promise to hold their value in overseas markets, especially in the Asia-Pacific region.
At the same time, the Hamburg-based investment and asset manager will continue to scan for selling opportunities and also not rule out large-scale deals. “The current market environment also offers opportunities for profitable disposal of assets from our well-established existing portfolio, particularly in Germany,” said Martin J. Bruehl, Chief Investment Officer and a member of the senior management team. “In 2024, we will actively leverage the increasing number of such opportunities for the benefit of our investors. We have already successfully sold office properties at above book value in Vienna and Zurich and, most recently, in Singapore.”
Active and cautious management of the cyclical shift
Michael Buetter stressed that Union Investment’s focus in 2024 will be on managing the cyclical shift in a way that generates added value for investors following the ten-year boom in the real estate markets. “Alongside maintaining a forward-looking investment approach, we will continue to implement our roadmap in the areas of decarbonisation and digitalisation, taking particular account of changing user requirements in our real estate portfolio,” said Michael Bütter. “We will place a special emphasis on developing our high-performance real estate platform around a modern data architecture and provide the appropriate level of investment to ensure it meets the demands of the future. This will enable other property types and regions to be included, thereby also supporting new institutional investment vehicles. Further development of the platform with regard to efficiency and time-to-market is vital, as it will allow us to bolster our competitiveness and prudently expand our real estate business in the new cycle.”
Photo: Michael Buetter, Chairman of the Management Board, Union Investment Real Estate GmbH
