The asset management arm of Swiss bank Mirabaud has officially entered the U.K. real estate market, securing a Grade A office building that serves as the headquarters for Virgin Atlantic and is located close to London Gatwick Airport. Constructed in 2016 specifically for Virgin Atlantic, the property is fully leased to the airline until 2032.
Mirabaud’s acquisition was motivated by the asset’s prime location, Virgin Atlantic’s long-term lease, and the building’s significance to the company’s operations, as well as the potential of strong market fundamentals in the West Sussex region.
“The acquisition of VHQ [Virgin headquarters] continues our strategy to invest in high-quality, mission-critical offices in regions with positive demographic and economic trends, leased to investment-grade tenants with in-place long-term leases,” said Vaqar Zuberi, head of alternative investments at Mirabaud Asset Management, in a statement.
Mirabaud Bank’s Real Estate Strategy
The London acquisition is part of Mirabaud’s broader strategy of diversifying its real estate portfolio, which spans key markets across the United States and now the U.K. and focuses on single-tenant office and logistics assets. The foundation of its approach is to target buildings that generate consistent cash flow and are located in areas with potential to rebound or be resistant to recent declines in office space value.
Following the acquisition, the firm’s real estate portfolio valuation will be around $700 million. Roughly 71% of its real estate holdings are office buildings and corporate headquarters, and it’s also targeting distribution centers, part of its emphasis on low-risk properties with consistent yields. Prior to the U.K. investment, approximately 70% of its investments were in the U.S., spanning states such as California, Texas, and Ohio.
The London Office Market
Mirabaud is entering a London office market that, like office markets across the world, has undergone significant valuation adjustments in recent years, with a 17.1% decline in capital growth from Q2 2022 to Q2 2023.
However, there’s optimism that London could be at the forefront of value correction in office real estate values across major European cities, making the current opportunity to buy low more attractive. A recent analysis by BNP Paribas Real Estate found that, since June 2022, London’s office sector experienced the most corrections in capital growth among eight key markets: Amsterdam; Berlin; Dublin; Hamburg and Frankfurt, Germany; Milan; Paris; and The Hague, Netherlands.
The anticipation of a narrowing opportunity window for investors is tied to the expectation that yields may decline once interest rates are lowered, which is widely expected to commence in 2024. This means that there could be a fleeting — but strategic — opening for investors aiming to capitalize on the market’s adjustment phase before prices respond to lower rates.
Tighter monetary policy post pandemic, characterized by higher interest rates, has served as a double-edged sword. While aimed at stabilizing economies by curbing inflation, it has also restricted liquidity and increased the financial burden on borrowers. For the real estate sector, this has meant a more cautious approach from investors, further contributing to the downward adjustment in property valuations.
However, as rates decline, more liquidity will enter the market, and investors will find it easier to take on the risk of utilizing lower-interest debt to invest in commercial properties and office buildings. This should drive up property values from the lows they reached in a high-interest environment.
For Mirabaud, then, the acquisition of the Virgin Atlantic building signals a confidence in the resilience and potential of the London office sector, and also aligns with broader macroeconomic trends indicating we may be approaching a maturation phase within the office real estate market’s adjustment to recent economic shifts.
Samir Atitallah, the CEO of Mirabaud Middle East Limited in Dubai, United Arab Emirates, said: “Traditionally, investors from the Middle East have shown keen interest in the U.K. real estate market, drawn to its stability and potential for strong returns. Despite the recent slowdown in the U.K. economy, we’ve successfully identified a highly compelling investment opportunity through our strategic approach to acquisitions. Our ability to navigate through economic challenges shows our resilience and strategic vision, positioning us for sustained success in the dynamic landscape of U.K. real estate.”
