One of the UK’s largest private landlords has said it is on the lookout for international deals to diversify its portfolio but does not expect a “bonanza” from sharp falls in commercial property values.
Grosvenor, the Duke of Westminster’s property group, owns swaths of central London in Mayfair and Belgravia. Chief executive Mark Preston said that falling property values and difficulty obtaining debt in some parts of the US real estate market will create opportunities for deep-pocketed investors like Grosvenor.
“We don’t think there is a market wide bonanza. There are interesting pockets of opportunities . . . particularly from parts of the market where the debt market is starting to close up,” he said. “As a long-term investor with patient capital, we are in an ideal position to capitalise.”
As part of efforts to diversify, Grosvenor is aiming to double its third-party investments — backing assets run by other property management and development companies — to £1.5bn over five years.
“We already have a very significant portfolio in residential in London. The indirect business is focused on diversifying our exposure,” said Preston. Grosvenor Property’s holdings were valued at £9bn at the end of 2022, roughly flat from the year before.
The company invested £300mn in third-party deals last year, taking its total indirect investments to nearly £600mn in locations from Australia to Brazil.
The group, which began developing fields and marshland into the district now known as Mayfair in the 1720s, has 36 per cent of its property portfolio in offices and roughly a quarter in each of retail and residential, including holdings in North America. It is looking to increase its exposure to other sectors including logistics and student housing, and to expand in Europe and Asia.
Rising interest rates have prompted anxiety about commercial property values, making lenders more cautious about the market. High office vacancy rates and the collapse of Silicon Valley Bank have added to those worries in the US market.
Lisa Attenborough, head of debt advisory at estate agency Knight Frank, said the sharp rise in debt costs has meant that for many deals taking on debt is now a drag on financial returns, which creates a “clearer playing field” for investors who can shell out large amounts of cash and rely less on debt.
“The US is where the debt market has really tightened,” she said, while in Europe and the UK “the debt is definitely there, but is it affordable?”
The early stages of the pandemic inflicted heavy losses on Grosvenor as property values and rent collection dropped, particularly in its British and Irish business.
Grosvenor’s urban property business recorded pre-tax profits of £110mn in 2022, down from £437mn a year before. The company said the drop was mostly caused by several large one-off property sales that boosted the results in 2021. Pre-tax profits in its UK property unit, adjusted to exclude valuation movements, increased 6 per cent to £38mn.
The company said it had set a new target to reduce its global direct and indirect carbon emissions in line with limiting global warming to 1.5 °C. The UK property business, which has already committed to reach net zero by 2040, has reduced its carbon emissions by 24 per cent over two years, it added.
