GPE has a £900m pipeline of potential acquisitions in its sights, as the company looks for development and repositioning opportunities in the capital.
In its results statement for the six months to 30 September, GPE said economic uncertainty and the rising cost of financing had dented pricing and values, and that its team believes “further opportunities to buy will emerge” as a result.
The company is now reviewing potential acquisitions valued at more than £900m, including buildings it could use for its flexible space offering and those that are “currently challenged from a sustainability perspective”.
Chief executive Toby Courtauld (pictured) told EG that despite the short-term challenges ahead, including an economic slowdown and recession disrupting the yield curve, “the more short-term disruption we get, the more positive we get about the medium term”. Part of the disruption, he said, was “a reduction in the supply of new grade-A space over the next few years” which will allow the REIT “to expand when others run away from risk”.
Nick Sanderson, chief financial and operating officer at GPE, said the vast majority of deals it has under review are off-market. He said GPE is specifically looking for “buildings to expand our flex offer, which is about 15% of our office portfolio to date”.
“Our aspiration is to get it to around a third of our office portfolio and we would like to add to that with further acquisitions,” he said. This space would be fitted out and serviced by GPE in what is “effectively plug-and-play” for occupiers.
The company is also looking to invest in properties where it can undertake wholesale redevelopment that it can then let on long leases, Sanderson added.
Of the properties GPE is considering, “a good proportion of them are from UK funds looking for liquidity” and there are some overseas owners of assets “where they don’t have the capability to undertake the improvement works that are needed for those assets”, said Sanderson.
Looking forward to 2023, Sanderson said the gap between what vendors are looking for and what buyers such as GPE are willing to pay is narrowing but there is still a gap.
“Our sense is that we will find even more motivated sellers,” he said. “There’s no distress in the system at the moment but there are some people who have been under a little bit of pressure to sell, perhaps because they’re facing redemptions – I’m thinking specifically about the UK funds.”
However, any acquisitions GPE does make are unlikely to be until the new year. Sanderson said: “With £1.1bn of prospective capex into our existing assets, we can look at the investment market as a place of opportunity for us but without any pressure for us to go and buy.”
Earlier this week, British Land chief executive Simon Carter said the company saw opportunities to offload some of its own “more mature” London office assets and recycle the proceeds into retail park and urban logistics schemes.
“We have created some great space, it leased really well but it is then a bit dry for us,” Carter said of some of the REIT’s offices, adding that other investors could find new opportunities in the sites.
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