Deka doubles down on London targets

Germany’s Deka Immobilien expects to put more money to work in London this year following a busy end to 2019, highlighting the city as one of its top picks for deals. The investor bought two London office blocks late last year for a combined £182m – the City of London headquarters of Swedish construction group Skanska at 51 Moorgate, EC2, and 40 Chancery Lane, WC2, home to communications company Publicis. The firm is now targeting more acquisitions in the UK over the course of 2020. “We are trying to be a little bit faster than the others,” says Joerg Wagner, Deka’s head of acquisitions and sales for the UK, adding that some rival investors have taken more of a “wait and see” approach to UK investment while the country’s exit from the European Union is finalised. “We are aware that there is a lot of money piled up targeting the UK, and everyone is just waiting for a little bit more direction on which way it’s going with Brexit.” Eyes on the price Since the 2016 Brexit vote, Deka has acquired around €2bn (£1.7bn) of assets in the UK, including the Cursitor Building, WC2, and Verde in Victoria, SW1. Dimitar Dimitrov, investment manager at Deka, admits the firm may have struggled to see off rival bidders for some of these properties, particularly its latest acquisitions, had competition not been limited by the UK’s political situation. The £455m purchase of Verde in 2018, he notes, was at a double-digit discount to the asking price. “I’m not sure if prices will go down at the pace many investors would wish,” Dimitrov says, adding that “for good quality product, they will probably stay the same”, particularly if the Bank of England cuts interest rates at the end of January. For Wagner, pricing in the UK is “OK” in comparison with other global markets. Yields are higher than in Germany and France, he says, and occupier demand adds to the country’s attractiveness. Bread and butter Deka has about €41bn of assets under management globally and receives in-flows of around €3bn to its funds annually. About 13% of its €37.9bn of real estate assets are in the UK. The business is currently deciding on investment targets for 2020. The UK, especially London, will be on its list of targets. “London is still one of our top markets because of the landlord friendliness, favourable lease terms with strong covenant tenants and it being one of the two or three most important financial centres,” Wagner says. “So we hope – and our funds hope – to find some more good product.” He adds: “We are actively looking for office assets as they are our bread and butter. We were lucky to find the two opportunities in London in 2019, so we hope there will be more in the market this year. Fingers crossed.” The firm is targeting core assets with long leases. Its holding period for real estate has increased from seven to 10 years due to the current cycle being so extended. Dimitrov adds that even during the global financial crisis, such assets traded at similar levels, which is why Deka now wants to get its collective hands on them. Wagner adds: “We think there will be some bumps in the road for 2020, especially at the end of the year when we will know where we stand with Brexit. But by being a long-term investor and having buildings with long leases we can overcome these situations. But maybe the bumps aren’t so big – and we’ll be even happier.” To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette