Union Investment takes advantage of current opportunities in the real estate market

Union Investment’s commercial property funds continued to prove their worth as solid investments in the first half of 2024. Despite a challenging market backdrop, open-ended real estate funds Unilmmo: Global and UniImmo: Deutschland paid out healthy distributions to their investors that were around 11 per cent up on the previous year. In mid-June, the distribution from UniImmo: Global was EUR 1.00 per unit, while the distribution made by UniImmo: Deutschland was EUR 1.90 per unit. UniImmo: Europa, which makes distributions in December, is also expected to pay out more this year than in the prior year.

The tax exemption on income enables Union Investment’s open-ended real estate funds to offer investors an attractive and competitive distribution yield that will remain stable over the medium to long term. Tax exemption rates of between 60 and 80 per cent apply.

“The good distribution performance across all of our open-ended real estate funds shows that occupier demand for high-quality properties in good locations remains intact. Rents for such properties are rising steadily in many segments,” said Michael Bütter, CEO of Union Investment Real Estate GmbH, presenting the results for the first half of the year.

Broad diversification and high occupancy rates.

Built up gradually over five decades, Union Investment’s real estate portfolio continues to generate stable earnings even in the current market environment thanks to strong occupancy rates and broad diversification of assets across regions, property types and industries. In the first five months of this year alone, the company’s internal asset management units let or relet around 340,250 sq m of commercial real estate space and have thus already secured annual net rent of EUR 94.1 million for Union Investment’s real estate funds. The indexed leases in the commercial property portfolio provided additional stability and protection against inflation. Occupancy rates based on rental income also remain very high, averaging 95.4 per cent (end of 2023: 95.5 per cent).

Focus on resilience and profitability.

In the investment markets, which are not likely to pick up momentum again until 2025 at the earliest, assuming further interest rate cuts, the emphasis in the first half of 2024 was on realising attractive sales profits. In total, eight properties (with a total value of EUR 1.2 billion) were sold by the retail and institutional funds in Germany, Austria, Sweden and Japan, with the overall proceeds exceeding the expert valuation and thus generating significant performance contributions.

The focus on the long-term quality of properties is paying off. Despite the challenging market, the one-year performance of Union Investment’s commercial real estate funds for private and institutional customers was stable in the first half of 2024, at an average of 2.7 per cent as at the end of May. At the end of 2023, performance averaged 3.0 per cent.

Union Investment intends to use the liquidity buffers created through disposals for further portfolio diversification and will invest in resilient property types, such as logistics and hotels, and in smaller properties. Additionally, the liquidity buffers will be used for investment in existing properties. The focus is on repurposing spaces, extending uses and upgrading locations to create attractive, high-quality neighbourhoods. Sustainable transformation is also a priority. Union Investment’s actively managed real estate funds currently have an average gross liquidity ratio of around 15 per cent, which significantly exceeds the statutory minimum liquidity requirement of 5 per cent.

New earning power for the real estate funds.

Union Investment is also focusing on project completions in order to secure future earnings potential and further boost its real estate assets, despite having made profitable disposals. In the first five months of this year, five developments in the office, logistics and retail segments were successfully completed and transferred to Union Investment’s holdings. Another 16 developments will be completed by the end of this year. These are already 52.4 per cent let ahead of completion and handover, with attractive cash flows expected.

Michael Bütter emphasised the opportunities presented by the current sea change: “We want to actively shape the next real estate cycle for our investors, irrespective of the anticipated interest rate cuts. This will include making targeted investments in the efficiency of our processes, in decarbonisation of our existing properties and in digitalisation.” Union Investment is planning to invest EUR 35 million in the digital development of its real estate platform in order to better meet the needs of institutional clients, among others.