The view from Zurich’s Gartenhofstrasse isn’t great. It’s a modest street in the usual understated Swiss style. Trams glide a short walk from sensible, grey commercial buildings and if it is known for anything it is for the Avis car rental office at number 17. You could be anywhere in Europe – even Manchester.
As it happens, Gartenhofstrasse and Manchester have at least one thing in common apart from the trams, and it is to be found in the offices above the Avis outpost. This is the almost comically discreet location of the HQ of the Foundation for International Real Estate Investments (AFIAA) – a massively wealthy federation of 35 Swiss pension funds (see panel). The foundation has been expanding its horizons lately and that includes taking an interest in Manchester.
Last summer AFIAA made an impressive bid for IBRC/Alanis Capital’s 106,000 sq ft Chancery Place office scheme. In the end AFIAA, advised by GVA, lost out as the near-miss underbidder in an intense battle that saw NFU Mutual pay £57m and walk off with the Brown Street prize. Immediately behind AFIAA was Bonn-based investor IVG Immobilien.
No doubt AFIAA and IVG will be back. Such investors don’t give up easily. They are in the vanguard of a new wave of mostly German, Swiss, Canadian and US investors looking at Manchester, and looking at it in a new way.
Until now, the argument goes, Manchester has been seen as a Tier 2 city. Now, it’s a Tier 1 city, just a smaller one than London. So if Manchester is competing for investment then it is competing with Berlin, Hamburg, Paris or Helsinki, and not so much with Birmingham or, still less, with Leeds or Nottingham.
Richard Divall, head of cross-border capital markets in Europe at Colliers International, says Manchester has the kind of product, the kind of lot sizes and the kind of large liquid market that international investors want.
“Berlin, Cologne, Hamburg – places like this are in some ways competing with Manchester,” he says. “Berlin is becoming Germany’s second media hub, and yields are around 5.75%. You can see investors like Credit Suisse paying 5% for Manchester properties, very comparable with Antwerp, or Cologne, where lot sizes are also very comparable to Manchester.”
Tom Kinsley, an associate director in CBRE’s EMEA capital markets team and a specialist in logistics property, says: “Manchester is competing with the biggest cities. I really believe Manchester is competing with London and Paris for investors’ attention.
“Investors see Manchester with a dozen speculative logistics schemes under 200,000 sq ft under way, a 7m population that is larger than any outside Paris or London, and a low vacancy rate. All of that is comparable with the best.”
Colin Thomasson, senior director at CBRE Manchester, agrees. He says: “We have another £100m of German and Swiss office investment deals in progress, and it’s only March, so this year will be another strong one for international capital in Manchester.
“Manchester has been internationalised. We are on a par with – in fact, bigger than – many European capitals. It is no longer the case that German funds are coming to London first and then to Manchester. They know they want to come to Manchester, and that’s because compared with many European first and second cities – Lyon or even Paris – the growth prospects are better here.”
Simon Merry, director at JLL in Manchester, says the next wave of Italian pension funds and investors from Asia are now beginning to see Manchester in the same way as the Germans and the Swiss (see investment feature, pxx).
“Manchester is very much on their list. Watch the Malaysians, the Singaporean investors – we have people on our Far East desk talking to them about Manchester now,” he says.
Can anything halt Manchester’s Euro march? Only the perception that the city was grossly overvalued could make a real difference.
As it happens, DTZ’s latest Fair Value Index says Manchester offices are the most overpriced UK market after London West End retail, with yield compression taking yields down 0.75% to levels last seen in the boom year of 2006.
A danger sign? In the meantime, Manchester agents are learning to say wie geht es ihnen? to their new best friends.
Think in German
AFIAA is not the only Swiss name on Manchester lips. Credit Suisse Asset Management has been buying and selling, predominantly acting for German funds. It has offloaded its interest in the 180,000 sq ft block at 3 Hardman Square, Manchester, as it winds up its £6.1bn CS Euroreal fund. M&G Real Estate was the £91.7m buyer. Credit Suisse funds have also been buying: the 25,000 sq ft block at 44 Peter Street, offered by Christopher Dee at £8m, and the 37,600 sq ft office at 19 Spring Gardens, offered at £13.2m, are understood to have fallen into their hands.
German money is also prominent: Commercebank and Deka are busy, as are UK asset managers with German mandates – Henderson, Reef and LIM among them.
The new Swiss guys in town
AFIAA – Anlagestiftung für Immobilienanlagen im Ausland – was founded in 2004 to handle overseas property investment for 35 Swiss pension funds. The tax-exempt funds share in a worldwide-diversified portfolio of direct investments with a heavy bias towards top-quality city centre office and retail. In 2012-2014 their portfolio grew in value by 5.64% to SFr1.19bn (£1.3bn). They buy with an eye to the long term, with a Manchester target range of £20m-£80m. Worldwide their target lot size is up to SwFr200m (£140m).
