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UBP: European government real-estate is an asset class with

many advantages By Pierre Escande, Head of Real Estate at Union Bancaire Privée (UBP)

At a time when financial markets are seeing highly volatile securities prices and the prospect of
higher inflation in the short and medium term, alternative investments in private markets, and

particularly in government real estate, make a lot of sense. This asset class has a number of
advantages for institutional investors looking for a long-term home for their money that combines

excellent visibility and competitive yields.

If visibility is a crucial criterion when selecting inflation, but also, and most importantly, Similarly, an increasing number of private-sector
an investment, government real estate has government real estate offers stability because companies are permanently adopting remote
attractive features for investors who are also of the very nature of the tenants. Commercial working, and so are planning to reduce the
looking for diversification, security and yield. tenants can sometimes restructure and relocate, amount of floorspace allocated to each staff
Properties rented by governments represent whereas these risks are less pronounced with member. This is less likely to be an issue with
an asset class that is too often overlooked by public-sector tenants. Although governments government employers, which are subject to
institutional investors, and one that offers several are seeking to optimise their expenditure in constraints that sometimes make it harder for
advantages: tenants are sovereign entities with response to rising land prices and construction their employees to work remotely.
good credit quality, fixed lease terms are longer costs, public-sector entities are less likely
than with corporate tenants (over 15 years on to relocate because of specific building Government real estate remains a highly
average), and yields are attractive compared requirements, approval processes that take specific, niche asset class, but one that
with standard commercial real estate. For longer than in the private sector, and constraints deserves to be more accessible to investors
investors wanting to diversify their real-estate relating to site security. This means that the and is undeniably attractive against the
holdings while investing in assets with little average government lease is more likely to be current backdrop of rising market volatility
cyclical exposure, government real estate is a renewed than a traditional commercial lease. and uncertainty.
particularly good place to look.
The market remains relatively fragmented at
European level, in terms of both users – each
country has its own state property agency
– and investors, because currently there is
no pan-European strategy focusing solely on
this asset class. This is why government real
estate presents attractive opportunities for
those that have the means and the access. It
is also possible to increase diversification and
stability by focusing on countries whose credit
ratings are high – like France and Belgium (AA),
and Germany, Luxembourg and the Netherlands
(AAA) – and unlikely to change significantly in
the medium term. In addition, governments
need to reduce public debt levels after the
spectacular jump in debt/GDP ratios in 2020,
and this should prompt them to speed up
disposals of real-estate assets in the next few
years, providing new investment opportunities.

Higher probability of lease renewals © depositphotos/ ifeelstock
Not only do inflation-linked rents secure
investors’ future incomes against overall

Disclaimer / Legal notice
This article is provided solely for informational purposes and its contents are not to be construed either as investment advice or as a recommendation by the UBP Group. Past performance is not an indication
of current or future returns. Any predictions or forecasts provided are purely indicative and by no means guaranteed.

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