M&G Real Estate: Navigating real estate’s new cycle

Speaking to CRE Media Europe at EXPO REAL, Martin Towns, global head of M&G Real Estate, and Simon Ellis, fund manager of the M&G European Property Fund, highlighted that a severe supply-demand imbalance, combined with near-record-low vacancy rates and rising rental income, continues to make real estate a compelling allocation.

Simon Ellis & Martin Towns

While previous market cycles saw capital narrowly concentrated into "beds and sheds", M&G sees the current environment as less about choosing entire asset classes and more about disciplined, granular stock selection.

In Residential & Living, multi-family assets and PBSA remain a key focal point due to their stable, inflation-linked income returns. M&G has deployed capital into key European cities, including major residential acquisitions in Berlin, student accommodation in Spain, and multi-family assets in Copenhagen.

In Logistics, industrial assets, particularly "last mile" facilities situated near urban centres, continue to deliver attractive yields. With tight supply and persistent tenant demand, rental growth remains strong.

The firm has also expanded into hospitality via leased hotel structures, recently completing prime transactions such as a hotel acquisition in Barcelona.

Value-add in London offices

M&G remains actively bullish on prime office spaces—particularly in the UK, where the firm holds approximately £18bn in real estate assets.

In prime locations like the City of London and the West End, strong occupier demand for best-in-class, high-ESG buildings faces a distinct lack of new supply.

To capture this upside, M&G is pursuing a dual approach by developing new, state-of-the-art office spaces while at the same time acquiring older, well-located buildings to refurbish, upgrade ESG credentials, and operate.

Global capital flows shift

A prominent trend identified over the past 12 to 24 months is a rebalancing of international capital flows. Overseas investors—most notably Asian capital—are increasingly targeting European and UK real estate over North America.

Investors are drawn by UK and European valuations sitting near the bottom of the cycle, attractive income yields, and clear rental growth potential driven by restricted development pipelines.

Outlook

Addressing concerns around recent interest rate movements and central bank policy adjustments, M&G leadership advocates for a balanced perspective.

"People are slightly scarred by the experience post-COVID when interest rates increased materially in a short period," noted Towns. "Today, rates are at a more sustainable level. The adjustments we are seeing are of a relatively small magnitude."

Unlike the sharp valuation markdowns experienced in 2022, current real estate pricing sits near cyclical bottoms, while income fundamentals remain sturdy.

Looking toward 2027, M&G expects a continuation of these core dynamics: resilient tenant demand, disciplined deployment across core, value-add, and real estate debt, alongside sustained capital reallocations into Europe and Asia.

Branislav Pekic