Recent acquisitions by real estate and infrastructure fund managers reflect how investors are buying into new, thematic ideas. Alex Rolandi reports.
The trend towards thematic investment is reaching into real estate. In the past, property fund managers usually divided their assets into offices, retail and industrial; these days, they are more likely to do so on the basis of life sciences, the future of work and sustainability.
Fidelity International’s recent investment in a Dutch science park – its first acquisition in the life-sciences market – reflected this shift. Fidelity bought Mirai House at the Netherlands’ Leiden Bio Science Park from a pharmaceuticals company for €54 million.
Life science covers a plethora of disciplines, including pharmacology and genetics. Maarten Frouws, an investment manager at Fidelity International, said the acquisition demonstrated a “shift in investor demand from mainstream real estate sectors to more thematic investments”.
Life-sciences infrastructure is an infant sector in Europe and one that Axa Investment Managers’ real assets arm entered towards the end of 2020 with the €500 million purchase of another Dutch asset, Kadans Science Partner – a real estate business that owns buildings and campuses spanning “key research locations” in the Netherlands, the UK and Germany.
John O’Driscoll, European head of transactions at Axa IM Alts, says: “You’re really at this interesting point where there’s a lot of funding – both private and public – going into R&D across Europe and the UK. If you look at a lot of the longer-term economic plans, they’re quite research-based and knowledge-based.”
Life-science real estate, he says, provides the infrastructure for innovations in industries such as healthcare that are “progressing” society.
The acquisition means that Axa IM’s real assets business can “enter and build immediate scale” in the life-science and lab offices sector – an emerging but high-growth asset class in Europe that is already established in the US, the firm says.
Like life sciences, the sustainability trend in real estate is also young and set to become a megatrend. Examples include the 2020 acquisition by Aviva Investors’ real assets arm of the Stylus building – a six-storey office building in London for £25 million (€28.2 million).
Stanley Kwong, who leads origination and impact investment strategy for the firm’s real assets business, says Stylus sets a precedent for how buildings should be.
The former 19th century gramophone factory does not use any fossil fuels. Hot water and heating for the site is provided by air source heat pump technology, with solar panels contributing to its electricity supply. This should help Aviva Investors reach net-zero emissions across its £47.3 billion real estate platform over the next 20 years.
“[Stylus] is a good example of the type of benchmark we want and where we want buildings to end up,” Kwong explains.
Although lockdowns and working from home are challenges for the office sector, Stylus benefits from being in London: specifically Tech City, a sub-market in and around Old Street in the north of the city.
The firm believes the area will experience strong demand for office space, especially when Covid-19 restrictions are lifted, considering its ability to “attract and nurture talent in the era of knowledge capitalism”.
Jonathan Bayfield, head of UK real estate research at Aviva Investors, adds: “Urban working environments provide several benefits to companies beyond face-to-face contact, such as a location that facilitates idea-sharing. Research shows bringing people together in clusters is the best way to spur innovation.” However, the days of “battery-hen style” offices are over, he says.
Kwong notes that the sharper focus on ESG investing that some say the pandemic has encouraged includes the correlation, for real estate investors, between environmental conditions and the wellbeing of tenants and occupiers.
According to data from Morningstar, assets invested in ESG-style European ‘sustainable landscape’ direct property funds increased from €2.5 billion in 2015 to around €12 billion by the end of last year.
Indeed, Covid-19 has galvanised a trend. Established areas like logistics and healthcare have further emerged, while sectors such as renewable energy infrastructure – although still in its early stages – has gained momentum, in part thanks to the EU’s objective of achieving 30% renewable energy in overall consumption by 2030.
Christine Brockwell at Aquila Capital says the installed capacity of renewable energy infrastructure (or how many megawatts can be produced) is expected to double over the next ten years.
Brockwell, who is head of partnerships and portfolio management for energy and infrastructure, adds: “Even though [there is] a tremendous amount of capacity already installed, in the grand scheme of things, looking at the next 20 or 30 years, the sector is still in its infancy. We’re a toddler at this point.”
Since its inception in 2019, the Aquila European Renewables Income Fund (AERIF) has invested in a number of windfarms, notably in the Nordics.
In March last year, it increased investment in Denmark’s Svindbaek Vindkraft HoldCo ApS (pictured), spending about €13 million on three additional turbines for the facility. The acquisition helps to reduce annual carbon dioxide emissions by more than 6,500 tons, according to the firm, while providing 9.6 megawatts of power.
Over the course of Svindbaek II’s projected 25-year lifetime, the assets are expected to save nearly 150,000 tonnes of CO2, says Brockwell.
But despite the obvious benefits, there will always be friction when it comes to renewable energy infrastructure and technology. Not everyone is a fan of wind turbines’ effect on their local landscape.
“There are two sides of a coin. Everyone loves wind energy, but there is a ‘not in my backyard’ mentality in certain regions,” says Brockwell. “We strive to be good citizens and host community events for the windfarms, but in the end it’s the original planning commission that needs to understand their constituents needs.”
In the name of community spirit, Aquila Capital recently set up a temporary ski slope at a co-owned asset in Norway and hosted a dinner party at the end of the day.
When residents around these infrastructure sites eventually see the buildings taken down, attempts are made to return the land to its original state and use.
Moreover, the possibility of more returns for investors exists. While some mechanical components are disposed of sustainably, others may be sold – for example, to emerging markets that can repurpose old turbines.
This is a “pretty big business” in itself, adds Brockwell.
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