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EUROPE NEWS: Core from the ground up

A total of $40.3 billion was raised for private real estate strategies in Europe during 2014, a growth of 82 percent from the previous year, according to research from PEI’s Research & Analytics division. And as more buyers enter the continent, recent data from property services firm DTZ also suggests 2015 commercial investment volumes are forecast to just stop short of the all-time 2007 record at approximately €210 billion, but significantly higher than 2014’s €175 billion.

The supply and demand dynamic for European real estate then is skewed heavily in favor of the seller causing prices, especially of core assets, to skyrocket. One firm that insists it is well-placed to take advantage of such high core pricing is AXA Real Estate Investment Managers.

To do so, the Paris-based real estate division of insurance company AXA will have a strong focus on development and ‘alternatives’ in 2015, according to Anne Kavanagh, global head of asset management and transactions, who said: “We have the expertise on the ground in Europe with 10 offices operating in 19 countries to be competitive in creating core.”

One example showcasing AXA’s 2015 development theme is the firm’s acquisition of 22 Bishopsgate in London known as the Pinnacle, which it acquired on behalf of a consortium of investors. The original Pinnacle development stalled in early 2012 when finance for the project ran dry, but it is being resurrected by AXA in an all-equity transaction, reportedly valued at £220 million (€299 million; $338 million). AXA will act as development and asset manager on behalf of the investors but has retained Lipton Rogers as its developer. The pair intend to develop a new landmark tower, designed by architects PLP.

Said Kavanagh: “Prior to the crisis in Europe, top quality core product was not oversupplied and during and after the crisis there has been very little addition to office supply. A number of the cranes on the London skyline are for residential. If you are an occupier at the moment hunting for office space in London, and you analyze the demand/supply statistics, there are actually very few choices.”

Not that development is new for AXA. The firm currently has 80 redevelopment or refurbishment projects across Europe with an end value of €8 billion, added Kavanagh. Another example of the firm’s development push is the Quadrans Project. The landmark office complex, the largest current development of its kind in France is located in the south-west of Paris (15th district) directly accessible by car and public transport, with strong visibility from the Paris ring road.

Kavanagh said that connection to infrastructure was key to the development work undertaken. Part of the rationale is that AXA sees the urbanization trend play out and occupiers are looking to be in dynamic cities where they can tap into a vibrant and dynamic workforce. “Millennials want to work in dynamic environments – London is expanding. Look at the growth of tech city and King’s Cross for example, which demonstrate that a number of companies want to be in CBD locations with strong infrastructure and diverse amenities to attract talent.”

This year will not just be about developing for AXA, however, as the firm is also looking at putting more capital to work in the ‘alternatives’ space. “We see opportunities. In Europe, it is an emerging sector versus the US. We understand the real estate and the income is attractive but you have to understand the operators, to invest well you need the sector expertise and private equity skills which we have in house,” says Kavanagh, who adds that the firm has capital to deploy in healthcare, hospitality, data centers and student accommodation assets.

But, AXA can expect more competition here than they might have come up against in the past. A CBRE survey of 280 real estate investors say they are planning an increased interest in ‘alternative’ real estate. Real estate debt has seen the most dramatic increase in activity over the last two years, from under €10 billion in 2012 to €49 billion in 2014 and is set to remain the preferred alternative choice this year. 32 percent of respondents stated that they will actively be pursuing opportunities in real estate debt in 2015, closely followed by student accommodation (27 percent), leisure/entertainment and healthcare (both 17 percent) and retirement living (15 percent).