Schroder REIT’s Montgomery on levelling up, big buys and a ‘hospitality mindset’

Schroder REIT is preparing to offload some of its smaller assets in favour of bigger buys as the investment firm looks for post-pandemic opportunities. “We’re being measured about this, but if you look at where our returns have come from historically, it’s asset management, and generally you can get more bang for your buck on bigger assets,” Nick Montgomery, fund manager and Schroder Real Estate’s head of UK investment, told EG as the REIT announced its full-year results. “We are going to be more active in terms of recycling the portfolio, selling some of the smaller assets and recycling those proceeds into bigger assets where we can most effectively use our expertise to drive revenue growth.” Montgomery added that “it would be wrong not to accept that the world has changed” as the markets move past the Covid-19 pandemic. “While we are expecting a return some form of normality that we recognise, some structural changes have accelerated and that is leading directly to some change in occupier trends.” Those changes are driving a renewed focus on asset management across the portfolio, including closer work with its service providers and the adoption of what Montgomery called a “hospitality mindset” within the business. “There is a recognition that, particularly coming out of the pandemic, tenants are going to be increasingly demanding of landlords in terms of the services being provided,” Montgomery said. He highlighted the REIT’s Elevate flexible workspace offering at its City Tower site in Manchester. Like other property owners, such as Great Portland Estates, Schroder REIT is eyeing the rise of flex space and expects that as much as a third of City Tower could ultimately be given over to Elevate. The REIT is sticking with Schroders’ “winning cities” strategy of identifying locations that will benefit the most from changing social and economic factors. That focus has been underscored, Montgomery said, by the government’s regional levelling-up agenda. “We think the levelling-up strategy, addressing imbalances, while it will benefit more deprived areas, will probably benefit the likes of Manchester and Leeds even more,” he said. And although industrial now accounts for the largest chunk of the REIT’s portfolio, Montgomery expects a convergence between sectors and to find “opportunities to invest in sectors currently out of favour”. With specialists in industrial, offices and retail on his team, Montgomery added, “We are very well placed to do that.” To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews