Join our community of smart investors

Property companies move out of Germany

UK-based property companies are ditching European assets to focus on the domestic market
August 21, 2015

UK-based property companies are jettisoning German assets to refocus on higher returns in the heated domestic market. Just over a week ago (13 August), residential property investor Grainger (GRI) announced it was taking advantage of good market conditions to start the process of selling off its portfolio of properties. It claimed this would help the group to "accelerate its strategic and financial focus on its UK residential activities to enhance shareholder value".

The move followed that of Capital & Regional (CAL), which invests in shopping centres, after it announced in its half-year results in early August that it had disposed of its German joint venture, providing net proceeds after costs of £42m, equating to a total profit of £2.4m.

Grainger chief executive Andrew Cunningham says that, a decade ago, when Grainger and others wanted to diversify into market-rented property, the relative immaturity of the UK market pushed them overseas. But times have changed. "The opportunities to invest in market-rented assets in the UK are coming through quite strongly," says Mr Cunningham.

Such shifts can also be understood in the context of shareholder pressure on small and mid-cap property companies not to try to be experts across different regions. James Carswell, equity analyst at Peel Hunt, says "You want to become to some extent an expert in one market. It is hard if you are in multiple regions and multiple asset types."

Whether it is investors or analysts who want a more singular focus from companies is up for debate. But as one listed player leaves the German market, another float takes its place. Retail investors can now access the residential market via investment trust Phoenix Spree Deutschland (PSDL), which listed in June.

Phoenix Spree's strategy is to modernise residential properties, increasing their value by pushing them into higher rental brackets. Meanwhile, Summit Germany (SMTG), which floated on the alternative market early last year, continues to buy up office property in Berlin. Strong economic activity in the economy that is carrying the eurozone on its shoulders means demand for office space remains high in the nation's capital.