Market Analysis

Large British buyers ready to take advantage of the US real estate market decline

Amos Simanungkalit · 23 Sep 20244.7K Views

Image Credit: Reuters

British investment managers Legal & General and Schroders (LON) are set to invest substantial amounts—totaling hundreds of millions of dollars—into U.S. commercial real estate, though they are largely avoiding the struggling office sector, the firms revealed to Reuters.

Managing over 1.9 trillion pounds ($2.5 trillion) in combined assets, both companies have been actively expanding their U.S. real estate divisions in anticipation of a rebound in property prices, fueled by declining interest rates.

António Simões, CEO of Legal & General, highlighted the U.S. real estate market as a key growth area, citing strong market fundamentals despite recent challenges.

Globally, higher borrowing costs and the rise of remote work post-pandemic have caused property prices to dip, with the U.S. office market facing particularly severe declines, leading investors to remain cautious about oversupply.

However, recent expectations for further interest rate reductions—after the U.S. Federal Reserve's recent 50 basis point cut—have improved the investment climate.

According to property analysts, the U.S. real estate market tends to recover faster than Europe, as American lenders and developers typically reprice assets more quickly.

Legal & General plans to expand its U.S. real estate equity portfolio by hundreds of millions of dollars over the next few years, alongside similar investments in its established real estate debt business. The firm has built a team of around 20 professionals in Chicago to drive the equity investment, focusing on rental properties that have proven more resilient than office spaces.

Schroders, meanwhile, aims to grow its U.S. real estate equity portfolio from tens of millions of dollars to hundreds of millions in the medium term. Earlier this month, Schroders made a significant investment in a pan-American data center portfolio as part of its expansion into U.S. real estate.

Michelle Russell-Dowe, co-head of private debt and credit alternatives at Schroders Capital, noted that the Federal Reserve's gradual normalization of interest rates could unlock significant pent-up demand.

Schroders has also identified considerable opportunities in real estate debt, as banks reduce lending due to stricter capital requirements. Jeffrey Williams, a New York-based investor at Schroders, emphasized the large financing gap that alternative lenders will need to fill.

While Schroders is not completely ruling out office investments, the firm stressed that such assets would need to be high-quality developments.

Separately, Phoenix's asset management arm, which oversees approximately 290 billion pounds, also confirmed plans to significantly increase its investments in U.S. real estate, although specific investment details were not disclosed.