Michael Bütter, CEO and Chairman of the Management Board of Union Investment | Credit: Union Investment
Michael Bütter, CEO and Chairman of the Management Board of Union Investment | Credit: Union Investment

UNION INVESTMENT’S REAL ESTATE BUSINESS SEES STEADY GROWTH IN 2022 EVEN AFTER INTEREST RATE HIKES

Union Investment has used the 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 3.3 billion euros across its retail and special funds.

Another 1.1 billion euros was raised by the Service KVG business. Based on the continued high level of cash inflows, 28 properties and projects worth around 2.4 billion euros were added to the property portfolios of the funds for private investors and institutional clients. There were also 41 acquisitions for Service KVG mandates, totaling around 1.4 billion euros.

Compared to 2021, which was a record year for acquisitions at 7.5 billion euros, acquisitions were deliberately lower at 3.8 billion euros. Project acquisitions in particular were scaled back significantly from the second quarter onwards. In addition to 69 acquisitions, the transaction total for 2022 amounting to 4.1 billion euros included eight sales with a total value of approximately 300 million euros.

“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,” said Michael Bütter, CEO and Chairman of the Management Board of Union Investment Real Estate GmbH, speaking at the presentation of the results for 2022.

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 percent. As of year-end 2022, assets under management thus reached a new record level of 56.2 billion euros, in comparison to the end of 2021 when the level was 51.7 billion euros. Despite greater challenges in the markets, the growth rate was exactly the same as in the previous year, when a gain of around 9 percent 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 percent to 3.1 percent in the course of a year. The company 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 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.

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 in 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,” said Martin J. Brühl, CIO and member of the senior management team.

Investment focus on residential and logistics

Union Investment continued the strategy 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 amounting to around 600 million euros, followed by the Netherlands amounting to around 400 million euros.  

The Hamburg-based real estate investment manager secured further residential projects in major European cities worth a total of over 300 million euros and 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 2 billion euros.

The logistics sector likewise accounted for a significant investment of around 550 million euros in 2022. The acquisition of Hexagon Kassel also marked the extension of the investment strategy into the light industrial segment.

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