Distance gets more attractive
SA property stocks add new areas in Europe to their offshore portfolios as local opportunities dry up
Places in Central and Eastern Europe (CEE) that were once unfamiliar to SA property players — such as Ústí nad Labem in the Czech Republic, Gorj in Romania and Tomaszów Mazowiecki, Bialystok and Kraków in Poland — are now on the radars of those looking for a hedge against a weak rand and the dwindling local growth opportunities.
The CEE region recently overtook the UK as the SA property sector’s single largest offshore investment market. It now accounts for about 20% of Jse-listed real estate assets, according to the SA Reit Association — mostly via Nepi Rockcastle, Echo Polska Properties, Global Trade Centre, Hyprop Investments, MAS Real Estate and Greenbay Properties.
And SA investors are also starting to familiarise themselves with locations in Spain and Portugal such as Viseu, Coimbra, Cáceres, San Pedro del Pinatar and Badajoz as local property stocks expand their tentacles.
In March, Resilient Reit and Greenbay entered Portugal via a joint venture, buying two shopping centres in a deal worth R3bn. The centres are Forum Coimbra, a 51,489 m² dominant regional mall in Portugal’s Centro region, and the 18,705 m² Forum Viseu in the city centre of Viseu.
The Portuguese interests of both Greenbay and Resilient represent a fairly small portion of total assets. On the other hand, Spain has been identified as a key growth destination by Vukile Property Fund, which owns a R15.5bn retailfocused SA portfolio, including flagship centres such as East Rand Mall in Boksburg, Dobsonville Mall in Soweto and Gugulethu Square in Cape Town. Spain has a much larger and wealthier population than neighbouring Portugal (see table).
Vukile entered Spain a year ago through a tie-up with Castellana Properties, founded by SA property entrepreneur Lee Morze, who is now based in Madrid. Vukile initially invested R200m in Castellana, which at the time owned two Spanish call centres. Over the past six months, Vukile has bumped up its exposure to Castellana to a substantial R3.6bn following the acquisition of 11 retail parks across Spain. Two more retail parks worth around R1bn will be added to the portfolio in the next few weeks, taking Vukile’s Spanish exposure to around 22% of total assets.
The expansion into Spain will boost the company’s total offshore interests to around 28% of assets if one includes Vukile’s R1.3bn stake in Uk-focused Atlantic Leaf Properties.
So why invest in Spain instead of following the rest of the crowd to the CEE region? Vukile CEO Laurence Rapp says that though the CEE region offers good money-making opportunities, it wouldn’t have made sense to offer SA investors more of the same.
“Besides, Spain [presents] a compelling investment case, as the economy is on a strong rebound following a double-dip recession,” says Rapp, adding that the country’s GDP growth rate of more than 3% outstrips the eurozone’s 2.5%.
Moreover, the Spanish economy has undergone a number of structural reforms in its labour and financial services markets, ➦