United Kingdom Article Why real estate M&A is on the rise A hunt for scale and sector expertise is driving an uptick in deal volumes November 24, 2021 Mergers and acquisitions in the real estate sector are on the rise, as a mix of pent up demand, renewed confidence, and a frustration in finding direct-investment opportunities at scale are combining to spur activity. A string of deals in recent months is a sharp contrast to the lull experienced early in the COVID-19 pandemic when caution ruled among real estate investors. More on "Investment Sales and Acquisitions" How real estate is starting to embrace green finance August 24, 2021 Real estate investors prepare for distress, but opportunities lag June 16, 2021 As inflation ticks up, investors hunt for hedges May 31, 2021 “The pandemic narrowed the focus to opportunities in some sought-after real estate sectors, while at the same time other sectors suffered significant disruption to business models,” says Raj Somchand, head of M&A and Equity Advisory for EMEA at JLL. “But we’re quickly moving on from that.” Among recent deals, the world’s third-largest listed real estate investment manager is being created with US$129 billion of assets under management, as Hong Kong-headquartered ESR Cayman buys real estate fund manager ARA Asset Management. In Germany, Europe’s largest real estate merger recently saw Vonovia takeover Deutsche Wohnen for around €19 billion (US$22.1 billion), bringing two major residential specialists together. Increased M&A activity in the real estate world is mirrored by a rise in deal-making across all industries, with volumes already close to their all-time US$4.8 trillion high, having so far surpassed $4.3 trillion this year, according to Refinitiv data. Sector expertise Recent deals have shown that companies are looking beyond just owning real estate assets. They’re also looking for operating platforms and management that can help them navigate and make inroads in new sectors. “Gaining access to best-in-class, proven management platforms is equally as important as portfolio and AUM expansion,” he says. “There’s a growing realization that real estate is no longer a collection of assets, and there’s a business that sits behind it.” It’s increasingly the case in less established real estate sectors. In June, global asset manager Brookfield acquired Arlington, a UK science, innovation, and technology real estate platform for £714 million (US$996 million), from TPG Real Estate Partners. In 2020, AXA IM Real Assets took over pan-European science park operator, Kadans Science Partner. “The likes of life sciences and data centres have come further into view during the pandemic,” he says. “They’re sectors where there’s a greater operating component to them and therefore they’re more suited to M&A. There’s a clear need for expertise able to safely guide capital, particularly in those more nascent sectors.” Subscribe Looking for more insights? Never miss an update. The latest news, insights and opportunities from global commercial real estate markets straight to your inbox. Subscribe Search for scale continues Another driver of M&A this year has been a continuation of the consolidation trend in the sector. Some M&A activity may have taken place regardless given the weight of capital focused on real estate, Somchand says. In a US$3.9 billion deal, New York listed Columbia Property Trust is being bought by investment manager PIMCO. Blackstone’s US$1.7 billion take-private deal for UK property company St Modwen gives the former access to new warehouse opportunities at a time of heightened competition for the logistics sector. Meanwhile, European industrial property manager CTP’s €800 million move for Deutsche Industrie REIT gives it a portfolio of around €7.2 billion. “The market was already heading in this direction, with increasing allocations to real estate,” he says. “Seeking scale has long been a key motivation, particularly for large investment houses. But the pandemic has undoubtedly created new opportunities for consolidation among funds, REITs and investment platforms." Investment Opportunities Office ActewAGL House, 40 Bunda Street, City AU - City 86,973 sf Office 33 Allara Street AU - City 104,798 sf Alternatives 1 Stephenson Street, Cremorne AU - Cremorne 15,210 sf Retail EMEA - IRL - 37-38 Capel Street - 2021 IE - Dublin 13,767 sf Search for properties Looking ahead As M&A activity continues apace, divestment by large institutional investors could see large platforms and portfolios potentially traded. “We’ve grown familiar with large global investment managers making moves for local, regional or sector specialists,” Somchand says. In Singapore, Keppel Corporation this year made a SGD2.2 billion (US$1.63 billion) bid to acquire the property and fund management arms of listed media company Singapore Press Holdings, whose portfolio includes European student housing, suburban retail in Australia and senior housing in Singapore. As management at listed companies, sovereign wealth and pension funds grows more comfortable with - and becomes more able to carry out M&A - the prospect of their platforms changing ownership is a “likely next phase,” Somchand concludes. Contact Raj Somchand EMEA Head of M&A and Equity Advisory Let's talk Looking for more insights? Never miss an update. The latest news, insights and opportunities from global commercial real estate markets straight to your inbox. Subscribe What’s your investment ambition? Uncover opportunities and capital sources all over the world and discover how we can help you achieve your investment goals. 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