Europe still has untapped real estate potential: Cromwell

Cromwell Property Group chief Paul Weightman says  greater opportunities for yield lie outside of the capitals and retail centres in Europe.
Cromwell Property Group chief Paul Weightman says greater opportunities for yield lie outside of the capitals and retail centres in Europe. PHOTO: CROMWELL PROPERTY GROUP

Fund manager eyeing Singapore listing singles out 29 smaller cities

The boss of a major asset manager reportedly planning the Singapore listing of a billion-dollar Reit comprising European properties is bullish on some of Europe's smaller cities.

The hunt for yield has sent plenty of capital flowing into Europe's major cities but greater opportunities lie outside of the capitals and retail centres, said Cromwell Property Group chief Paul Weightman.

"In the city of London, a 3 per cent yield is considered attractive because the investor believes there's a limited downside. We have a different view," Mr Weightman told The Straits Times over lunch on Monday, during a regular visit to meet investors here.

The Australian-listed property investor and fund manager manages €4 billion (S$6.2 billion) worth of assets across 24 separate funds in Europe, which tend to be invested in secondary cities. Cromwell entered Europe with the acquisition of property fund manager Valad Europe from Blackstone Group in 2015.

Last November, the Wall Street Journal reported that Cromwell is planning to list a billion-dollar European property portfolio on the Singapore Exchange, which would be this year's largest Reit (real estate investment trust) listing.

Mr Weightman declined to discuss details relating to the Reit, saying only that he was "bullish" on European real estate.

Broadly, Cromwell has identified 29 secondary cities, including Hamburg, Leon, Malmo and Milan, which it sees as benefiting from trends such as changing work patterns, urban renewal and good transport links. Manchester and Leeds are on the list too, though Mr Weightman noted that the post-Brexit uncertainty in Britain right now is still too much for his liking.

Diversity across asset classes is also important for investors to get a foothold on the Europe story, he believes: "Each market has a different fundamental. Retail in France is more challenging; Germany, we think, has been very highly priced in terms of office. Italy we're just starting to see more economic activity, particularly in the north, which will flow on to improved demand for real estate."

The light industrial sector is one that stands out for Mr Weightman. "It still has yet to attract the volume of investment that we've seen in logistics, but it presents greater opportunity for less risk. You've also got - in a lot of those light industrial and urban logistics estates - a very large portfolio of land close to the city that, in time, will present opportunities for redevelopment."

Mr Weightman also eyes very specific opportunities in markets where offshore investors and American private equity funds are less familiar. One example is Poland, the only European country to avoid a recession following the 2008 financial meltdown. A highly educated workforce, rising local living standards and a low degree of penetration in Internet shopping translates into continuing growth in consumer spending and demand for retail, Mr Weightman said.

Then there is the Netherlands, where Cromwell sees a good opportunity in the re-flotation of traditional office markets.

Cromwell has a Reit listed in Australia, but a Reit of European properties here would be a new first.

Mr Weightman said: "The challenge in Europe has been to find the jurisdiction that gives retail Reit investors all of the tax transparency and flexibility that they want. With the exception of countries and exchanges like Singapore, it's very hard for people to find the transparency and flexibility to accommodate diversified exposure."

A version of this article appeared in the print edition of The Straits Times on May 17, 2017, with the headline 'Europe still has untapped real estate potential: Cromwell'. Print Edition | Subscribe