Henderson Global Investors, owner of more than US$8 billion of European retail properties, will cut investment spending in the UK this year

Henderson Global Investors, owner of more than US$8 billion of European retail properties, will cut investment spending in the UK this year because of slowing rental growth and falling values in some parts of the country.

The UK will account for about 10 per cent of the three billion euros (S$6 billion) of European investments that Henderson funds plan for this year, compared with 60 per cent in 2006, said Patrick Bushnell, the head of European investment.

By the end of 2007, non-UK holdings will rise to half its assets from 30 per cent.

‘The UK is looking vulnerable and we’re aiming to build our portfolio elsewhere in Europe,’ Mr Bushnell said last week. Henderson will focus on Germany, Greece and Italy, he said.

Real estate investors are looking outside the UK for properties offering both valuation gains and rental income growth. The value of some UK retail-related property has fallen, a sign that the 11-year unbroken run of price gains for UK commercial real estate may be about to end.

Rental growth for some retail real estate was the slowest in a decade at the end of last month, according to consultant Colliers CRE, after higher borrowing costs curbed consumer spending, reducing retailers’ margins.

The price of secondary outlets, less valuable than other properties because of their location or quality, has dragged down the UK retail market. Secondary properties have lost 10 per cent or more of their value since the third quarter of 2006, Colliers CRE estimates.

The slowdown has been led by retail warehouses dealing in bulk goods, such as Kingfisher plc’s B&Q home improvement chain, the UK’s largest. B&Q’s gross profit margin was unchanged in the first quarter from a year earlier, when it fell three percentage points.

Europe’s largest real estate investment trust, Land Securities Group plc, and Capital & Regional plc, which jointly owns one in eight malls in Britain, have in the past two months reported lower values for some retail-related properties.

‘We’ve been worrying about people over-valuing secondary retail,’ Mr Bushnell said. Some investors ‘have been buying indiscriminately, paying aggressive prices, and they will be disappointed’.

London-based Henderson sold the Staples Corner retail park in north London because of its limited scope for additional rental growth. Investment in the UK will focus on the money manager’s £1 billion Central London Office Fund, which targets what is now the best-performing segment of commercial real estate in the UK, or on development.

Mr Bushnell said that investments by the UK Shopping Centre Fund, one of more than a dozen of Henderson’s funds in which professional money managers invest, will focus on developments or refurbishments such as Princes Quay in Hull and Buchanan Galleries in Glasgow.

The largest project is the £184 million investment a year ago in Edinburgh’s St James Centre, an ‘eyesore’ mall in the centre of the Scottish capital, which is being refurbished before a ‘major renovation’, Mr Bushnell said.

‘We continue to find good assets to buy that are considered secondary, but can be turned into prime with a bit of work,’ he said.

Henderson last month started a German retail fund in a venture with developer Management fuer Immobilien AG to tap ‘the underprovision of shopping centres’. Henderson’s Herald fund in March spent 85 million euros acquiring the Shopping Cite centre in Baden-Baden.

The fund manager is also looking at shopping centres in southern Italy and is ‘very interested’ in Greece, where international retailers are looking for outlets and rental income is an attractive proportion of purchase price, Mr Bushnell said.

Over the last three years, 93 per cent of Henderson funds exceeded their investment targets.

Henderson Global Investors is a unit of Henderson Group plc, which manages about £61.9 billion of assets. Europe accounts for about US$16 billion of Henderson Global Investors’ real estate investments.

Source: The Business Times, 21 June 2007