New Investment Bets And The Death Of Old Sayings: £11.5B Grosvenor Evolves For Growth

The 34-year veteran leader of a 340-year-old property company says it is shifting into new areas, including venture capital investment, to keep growth coming while moving away from some age-old real estate axioms that no longer apply.

Grosvenor annual results this week showed a slowdown in profits and returns in 2022.

But CEO Mark Preston is highlighting the company's £111M investment in food and agtech businesses last year and its plan to keep channelling profits from the firm’s £9B property empire into the area. Preston also said the company would spend £500M backing other property investors in sectors like logistics and student housing over the next five years.

And, though Grosvenor owns a £4.5B chunk of London’s West End, one of the world’s most expensive property markets, Preston asserts the old mantra of "location, location, location" is dead — at least when it comes to office.

“Fifteen years ago, we were so focused on making sure we were seen as a sophisticated international property investor that we were a bit shy about talking about the muddy wellies on the back doorstep,” Preston told Bisnow. “But now the things we were most shy about are among the most sexy.”

Grosvenor has always been a business with a deep involvement in land and farming. The family property company of the Duke of Westminster, Hugh Grosvenor, it can trace its roots in Britain back nearly 1,000 years.

Its London property empire started with the marriage of Sir Thomas Grosvenor to 12-year-old Mary Davies in 1677, a marriage that came with a parcel of swampy farmland to the west of London. That land was developed over time, and today, makes up that £4.5B chunk of Mayfair, Belgravia and Pimlico.

The company also has a rural business that includes 134,430 acres of land in Scotland and the north west of England, a mixture of farms, peat bogs and timber woodland. In 2012, it added a food and agriculture investment business to its property and rural divisions.

By the end of 2022, the company had invested in 28 food and agtech businesses across the world, a mix of early stage and more mature companies, with a combined valuation of £468M. Last year, it made £45M of new investments and £66M of follow-on investments. 

The division is essentially a venture capital business within Grosvenor, and is not looking to make a profit in the short term.

“There will be failures, there have already been failures, but it is not a supplicant of the property business — if we get it right, then eventually it should produce higher returns,” Preston said.

“In our view it’s an opportunity to invest in companies that are reshaping the food and agriculture industry, which is very fragmented and offers lots of opportunity for disruption. It’s also a chance to improve issues like food security and sustainability in a world with a growing population.”

Businesses in which the company has invested include AeroFarms, a U.S. indoor vertical farming company, and Oxbury, the UK’s only bank dedicated to the farming and rural communities. 

There are some synergies with the property business: For example, a vertical farm could be one of its tenants, Preston said, or its rural business could grow timber for a new development. But the aim is for it to make a profit on its own. 

Overall, Grosvenor produced 2022 financial results Preston described as “resilient in a choppy environment” — an environment he does not see changing any time soon given interest rates are set to stay high and consumers face pressure from an increased cost of living.

The company’s property business made a profit of £53M, compared with £100M in 2021, and a total return of 3.5%, down from 5.2% the previous year. 

Grosvenor owns £9B of property directly, and it has assets under management of £11.5B once third-party capital is taken into account.

Of that £9B, £5B is situated in the UK, £2B in the U.S., £1B in Europe and Asia, and £1B in its indirect business, which invests in other companies and funds. Grosvenor saw values fall in its office and retail assets, but hold up in the industrial and student housing assets owned by the indirect business.

That division, called Grosvenor Diversified Property Investments, will be a major focus for the company over the next five years.

Grosvenor has been selling out of its directly owned assets in Europe and Asia over the last couple of years, and reinvesting the proceeds in that division, which puts money into joint ventures and funds with specialists in sectors where it doesn’t have a presence. 

It will invest around the globe, with a focus on Europe and Asia first, to balance the sales it has made in those regions. The division's £1B of assets is expected to grow to £1.5B over the next five years, the company has said. 

Last year, Grosvenor committed £300M of equity across eight deals, including a life sciences investment with Tishman Speyer-backed Breakthrough Properties; an investment in the Dublin office market alongside Fine Grain Property; and a further investment into Brazilian student accommodation specialist Uliving.

“The Grosvenor balance sheet is strong, but it’s finite,” Grosvenor Chief Financial Officer Robert Davies said. “This allows us to be agile, to reallocate capital over time to management teams and sectors that we think will outperform.”

Other sectors on the radar include data centres, although Grosvenor has yet to find the right opportunity, Davies said.

The company has set a stringent carbon reduction target, aiming to be net-zero carbon by 2040, a target verified by the Science-Based Targets Initiative as being in line with the UN goal of keeping global warming to 1.5 degrees Celsius or below. Its most recent results outlined that like-for-like energy consumption dropped by 7% in its UK business and rose 3% in its U.S. business.

As for the largest part of the Grosvenor empire, the UK property division had £5.8B of assets under management at the end of 2022, comprising 1,348 assets. It made a £38M profit and saw a total return of 1.8%.

The company will continue to benefit from the draw provided by the West End, where most of its portfolio is located, Preston said. As both an office location and a draw for shopping and having fun, it is well placed to weather changes to the way city centres are used, he added. 

As evidence, Preston pointed to the company’s London retail portfolio, which has less than 1% vacancy, with restaurants performing well and a growing number of retailers using its stores as a showroom.

But for offices, the picture has changed.

“Location, location, location is dead,” he said, rhetorically killing off the god of UK real estate wisdom. “Instead I think it’s location, specification, specification.

"It’s no longer possible to talk about the property market generally, or even submarkets. Yes, you have to have the right location, but you need property that is environmentally efficient and has the specification people want. You can have two buildings in the same location and one will perform very well, and rents will go, while the other will struggle.”