SCC patron CLS Holdings is a property investment company active in the UK, Germany and France specialising in owning and managing office buildings. The company was founded by Sten Mörtstedt and remains a majority family-controlled business that has been listed on the London Stock Exchange since 1994. The Link met with Fredrik Widlund, who has been the CEO of CLS Holdings since 2014, to talk about his career, the business and important trends in the UK market.
Fredrik Widlund grew up in Stockholm where he studied Business and Economics at Stockholm University. After finishing his studies, Fredrik joined Shell in Sweden, and after a few years the company offered him a move to London to work on strategy for its UK portfolio. Fredrik later joined GE Capital where he held various international roles in financial services and real estate for the following 15 years, before being appointed CEO of CLS Holdings in 2014.
“What attracted me to CLS was the opportunity to run a listed company with operations in several countries while maintaining an entrepreneurial culture. Our company is listed on the main market in London and is a member of the FTSE 250 index. Many of our property peers are domestically focused so CLS is pretty unique in its exposure to more than just the UK,” says Fredrik.
According to him, the expression ‘bricks and mortar’ is very telling as to why it is so fantastic to work with properties. “You can really see and touch what you do, and it is great to meet all the different occupiers in our buildings.” He continues: “We have close to 700 tenants in our properties from many different industries: government, large multi-nationals, charities, small to medium-sized family businesses and tech start-ups. I also very much enjoy the international aspect of working across different countries and cultures.”
Focus on geographic diversity and local teams
“Our objective is geographical diversity, so that we are never overexposed to one market,” says Fredrik. In 2016, CLS’s last property in Sweden was sold and in 2017 it exited a large development site in London, Vauxhall Square, and redeployed the capital in Germany through a portfolio acquisition. “This means that today we are active in the largest cities in the UK, Germany and France.”
CLS has its head office in Vauxhall, London, and regional offices in Hamburg and Paris. According to Fredrik, one of its key strengths is that it has its own local teams in all countries in which it is active. He points out that CLS does not particularly believe in outsourcing and thinks that customers like to meet and do business with the owners of the property and not an agent.
Economic growth, accessibility and affordability
When speaking about what areas to invest in, Fredrik says that CLS focuses on larger cities which offer strong economic growth prospects as this drives employment and ultimately the demand for offices. “In the UK this means Greater London, which is a very deep market representing a quarter of the entire UK commercial property sector. In Germany we are in the main cities such as Hamburg, Munich, Berlin, Stuttgart and Dusseldorf, and in France we are active in Paris, Lyon and Lille.” A primary consideration for all of CLS’s tenants is accessibility, so one key factor is to ensure that its properties are located close to good public transportation links. Another key factor is affordability. “Our properties are located close to major cities, but outside of central business districts, so our rents are affordable,” says Fredrik.
One of the largest and most liquid markets in the world
In the UK market, CLS is focusing on Greater London and the South East with over 90% of the UK portfolio by value in these areas. Some of the locations where you can find CLS properties are Vauxhall, Hammersmith, Croydon, Harrow, Uxbridge and Brentford.
“Real estate is a hugely important ‘base’ industry, employing over a million people and contributing over £60 billion to the UK economy every year,” says Fredrik. In essence the UK market is one of the largest and most liquid in the world. “London, especially, is an international city that offers a fantastic environment for people and employers. We are also very encouraged by the infrastructure spending in major public transport such as Crossrail One, and potentially Crossrail Two, and other large infrastructure projects like the Thames Tideway.”
He elaborates: “The UK market has always attracted both international and domestic investors. The nationality of the foreign buyers might have changed over the years, but with the very transparent legal system which makes it easy to buy and sell properties, the English language and the connections to the rest of the world, it is a very dynamic and healthy market.”
Trends in the UK market
Regarding the future of the UK market, Fredrik says that Greater London, like many large cities, is suffering from a lack of housing stock. Something that he does not see changing in the foreseeable future. “With our focus outside of the very centre of London, we have seen reduced competition as many older buildings have been converted from offices into residential dwellings resulting in a reduction in the supply of offices.”
For residential, he highlights that home ownership has traditionally been a priority in the UK, but there is now an emergence of a larger, professional rental sector which is more similar to that in Sweden or in Germany.
In the office market the biggest trend has been the growth of flexible working and rapid expansion of serviced office operators. This has meant that leases are generally shorter than in the past and tenants are looking for flexibility. “London has always been in the forefront of trends. This started with open plan offices and more recently, we have seen a focus on collaborative areas. While the office culture is different across each of our regions, our European teams benefit from each other’s know-ledge when it comes to emerging trends in development, refurbishment and sustainability, and London is in many areas leading the way.”
A working environment that attracts and retains the right employees must be on top of the agenda for companies. “Offices today have much more focus on wellbeing, collaboration, amenity spaces and areas like terraces and hubs. It is also very rare today not to offer shower facilities and plenty of bicycle storage in any office development,” says Fredrik.
Sustainability - critical for all occupiers
Another critical factor for most tenants is sustainability and CLS strives to make this an integral part of their day-to-day business while cultivating a better environment for all of their stakeholders. Fredrik highlights that a large portion of their tenants want to understand the energy efficiency of a building and the approach to recycling. In order to meet this need, CLS factors in the levels of energy consumption and how sustainable all of their properties are in the long term. “We see the creation of sustainable space as an important USP rather than a box which we need to tick. We are proud of our Swedish legacy and sustainability is one of the areas where Sweden is at the forefront and to which we look for innovation and best practice. This has meant for example installing ground source heating for new office developments in London to reduce reliance on traditional gas boilers and testing the popularity of electric charging points at a number of our properties,” says Fredrik.
When it comes to the challenges ahead, Fredrik emphasises that the property market is cyclical in nature and we are likely to be at the latter stages of the current cycle. “This has an impact on prices and financing arrangements. Our response is to ensure we are diversified, both geographically but also with a large spread of different occupiers.” He also says that like any company active in the UK, CLS has seen customers postponing or delaying decisions due to the uncertainty that the Brexit process has created. However, he is confident that the diverse income from the portfolio will be resilient. “A diversified, well-let property portfolio creates stable cash flows and that is attractive to investors. We will continue to ensure that we have the best properties in our locations that continue to attract high-quality occupiers.”
He also states that since investors take different views on the long-term prospects of Brexit, CLS has seen some opportunities to acquire attractive properties. “It is also important to look past the headlines and to try to take a more fundamental, longer-term view on a market with 65 million people and the fifth largest economy in the world.”