Real Estate Podcast: Alecta Says Housing Supply Key to Retaining Talent in Cities | In line

You can listen to this podcast via Apple podcast Where Spotify Where SoundCloud or listen to it via the player below:

According to Frans Heijbel, Head of International Property Assets at Alecta, when it comes to build-to-let: “The UK market has huge potential, but it lacks bigger platforms, and I think the increase in the number of ‘market investors can achieve this.’

In 2020, Alecta became the first Swedish pension fund to exceed SEK 1 trillion (£81.8 billion) in assets under management.

The pension fund sold all of its direct property portfolios in the US and UK for around £2bn at the end of 2016 to Blackstone and Goldman Sachs, with Heijbel pointing out that asset valuation at the time was a key factor motivation in this decision.

Alecta has since re-entered the UK property market and is now best known for its progressive stance on build-to-let (BTR), having diversified its investments into platforms like Delancey Oxford Residential (DOOR). As the Western European residential market shifts from an investment market to an income driven market, Heijbel says: “We saw that the way to maximize performance was to create a platform. You get benefits of scale, you get benefits of size, you get a better understanding of tenant needs, and you create something compelling.

In terms of the ease of investing in build-to-rent in the UK, Heijbel suggests: “Some institutional investors struggle to find the right investment format. Once you have structures that are open to more capital, that will help. I think it’s happening, but there’s plenty of room for growth.

Outside of the relatively young BTR market in the UK, Alecta has invested heavily in Heimstaden Bostad, Europe’s second largest residential landlord with an expanded portfolio of €27.5bn. Speaking of Alecta’s experiences in Europe, Heijbel says: “What you will find is an extremely fragmented market. There are probably around 80 million units and although we are now the largest private owner, we only have around 0.2% of the market.

Heijbel highlights the need for housing to attract talent to big cities, with build-to-let having a key role to play. Highlighting the issue, streaming giant Spotify notoriously threatened to pull its headquarters from Stockholm, Heijbel’s hometown, due to a lack of available housing for its employees.

“Even in the UK, you hear of big companies not considering setting up their headquarters in London because they don’t think they will find accommodation for their staff,” says Heijbel. “On the other hand, it could benefit regional metropolises to some extent. But I think every city needs to look at that very seriously because you need a younger generation to be able to develop businesses.

Outside of residential for rent, another of Alecta’s focus areas is life sciences, having invested $780 million in life sciences and healthcare real estate in the US in 2019 and 2020. Heijbel says: “Real estate is to some extent much more resilient than normal office buildings, because the drivers for tenants are very different from the drivers for the general economy.

In terms of forecasts for ESG, Heijbel says: “We have many clear indications that there is going to be a two-tiered market for green buildings versus brown buildings. You don’t want to be behind because you might end up with an empty building.

As a result, ESG will be a central priority for Alecta in 2022. “We are constantly trying to understand how ESG can either make a case for changing anything in our strategy or change any vision of our existing holdings. Because I think that’s where the risks are.

You can listen to this podcast via Apple podcast Where Spotify Where SoundCloud or listen to it via the player above.