Major UK Investors Ready to Capitalize on US Property Market Dip, According to Reuters

By Iain Withers and Sinead Cruise

LONDON (Reuters) – British investment managers Legal & General and Schroders have announced plans to invest hundreds of millions of dollars in commercial real estate in the United States, while largely avoiding the struggling office sector, they told Reuters.

Both fund managers, collectively overseeing more than £1.9 trillion ($2.5 trillion) in assets, are strengthening their U.S. real estate teams in anticipation of a market recovery, supported by declining interest rates.

António Simões, CEO of Legal & General, emphasized that U.S. real estate represents a significant growth opportunity for the company, noting that the underlying market fundamentals remain robust.

The global trend of rising borrowing costs and the rise of remote working post-pandemic have negatively impacted property values, with the U.S. office market facing particularly steep challenges, leading to investor anxiety over potential oversupply.

However, the prospect of further interest rate reductions has positively influenced the investment landscape following a notable 50 basis points cut announced last week by the U.S. Federal Reserve.

Property analysts indicated that the U.S. market responds more quickly to shifts than continental Europe, with lenders and developers more rapid in adjusting asset valuations.

Legal & General plans to significantly grow its U.S. real estate equity portfolio over the next few years, while also enhancing its real estate debt exposure. The firm has established a team of around 20 in Chicago to focus on equity investments, particularly in rental housing, which has outperformed the office sector.

Schroders aims to expand its own nascent U.S. real estate equity portfolio from tens of millions to hundreds of millions. This month, the firm made its first investment in a pan-American data center portfolio.

Michelle Russell-Dowe, co-head of private debt and credit alternatives at Schroders Capital, noted that the Federal Reserve’s path toward normalized interest rates could unlock considerable pent-up demand.

Schroders is also exploring opportunities in real estate debt as banks pull back due to stricter capital regulations. Jeffrey Williams, a New York-based investor at Schroders, highlighted the significant opportunity, pointing to the substantial financing gaps that could arise.

The company is open to investing in office properties, provided they are of high quality.

Additionally, British insurer Phoenix’s fund management arm, which oversees around £290 billion, indicated its intention to significantly invest in U.S. real estate, though specific details regarding the scale of investment remain undisclosed.

($1 = £0.7520)