Patrizia eyes ‘game of two halves’ for UK investment

The UK is fast becoming “the only market to play in” across Europe for investors looking to snap up re-priced assets, says the UK head of transactions at Patrizia. The German investor sealed €6.5bn (£5.7bn) in deals in 2022. At £900m, its UK deal activity fell below what the company had anticipated when speaking with EG at this time last year. But Phil Irons (pictured), who joined the team two years ago, now believes a dearth of deals in the first half of 2023 will be followed by a notable pick-up towards the end of the year. Irons spoke with EG about the outlook for secondary offices, last-mile logistics, waiting to find the right life sciences investment and more. EG: What was Patrizia’s deal flow like in the UK in 2022, and what activity are we likely to see this year? Irons: We turn over £1bn of deals a year, and last year was slightly lower than that at about £900m. I think this year will be possibly slightly down again. But we will still be doing close to £750m. The market this year is going to be slower. I think while values have rerated after the interest rate movement, they have got a bit further to go. Values are probably down, in very broad terms, 20% and while the prime market seems to have settled, I think there are still grounds for a little bit more slippage on pricing. EG: In which markets? Irons: The secondary office market is going to see some significant falls in value, which in itself will be an opportunity for us. While the prime market has held up to a degree, the secondary still has a long way to go and there is going to be a lot of pain in that sector. I think 2023 is going to be similar to 2022 in that it is going to be a game of two halves. In 2022 there was a huge amount of activity in the first half of the year and almost none in the second half. I think the inverse will be true this year. There will be very little activity this side of June – what activity we see this year will be back end towards the second half of 2023. EG: Residential was in focus last year. Will that continue in 2023? Irons: The appetite for residential, certainly build-to-rent, is going to continue. It is a sector that we have been very active in over the past three years. The supply-demand fundamentals for the sector still remain strong and the challenge going forward is going to be rental affordability. However, we remain confident about the longer-term prospects for the sector. We were one of the earlier movers on the private rented sector side. We are always looking at alternatives, and spent a lot of time looking at senior living. EG: Will there be any shift in strategy this this year? Irons: I think 80% of what we did [on the buy side] was in the industrial sector, specifically last mile. We will continue to be active in that sector. Values have definitely got further to fall, but it is a sector we will be interested in investing in. In retail, I suspect it would be more retail warehousing and shopping centres. There is a lot of interest in life sciences. It is something we are tracking, but we haven’t been active to date. There may be some office refurbishment plays that fall into the life sciences sector, but that would be kind of deal-driven. EG: What is the house view on the macroeconomic outlook for the UK? Irons: The macroeconomic outlook globally is going to remain challenging, and I think that post-Brexit will be an issue for the UK. That said, the one significant advantage we have over the European markets is that we have repriced to a far greater degree. Values in Europe are down a few percent, not the circa 20% we’ve seen in the UK. So, if you are looking for reprice opportunities, the UK market in reality on a pan-European basis is the only market to play in. To send feedback, e-mail akanksha.soni@eg.co.uk or tweet @EGPropertyNews Image courtesy of Patrizia