Deutsche Finance International (DFI) has launched a UK urban logistics platform in a joint venture with Argo Real Estate with the £177 million acquisition of two portfolios.
Market illiquidity and repricing allowed the fund to acquire 11 assets totalling around one million square feet. The units are in prime, supply-constrained urban logistics hubs including London, the South East and Manchester.
UK logistics platform targets £400 million of value
The new UK logistics platform targets £400 million of value and is an affiliate of DEUTSCHE FINANCE GROUP.
The assets range from institutional quality urban warehouses, such as the 147,000 sq ft facility in Theale, which is let on a long lease to Amazon, through to those on shorter leases that offer opportunities to capture rental reversion. The overall portfolio’s current market rent is over 80% above the average passing rent, with a WAULT of 5.7 years and a broad range of high-quality tenants including Royal Mail, Greencore, GXO Logistics and Aldi.
The assets are 90% occupied, with a single vacant asset where a comprehensive repositioning will be undertaken.
The recent rerating of the asset class in the UK, allowed DFI to enter the sector at a level where it believes it can deliver opportunistic returns for its clients while taking core+ risk.
Logistics is conviction asset class
Logistics is a conviction asset class for DFI, being underpinned by strong occupier fundamentals, record low vacancy rates, as well as a limited pipeline of new development and in many areas a reduction in existing supply as space is lost to alternative uses.
The upgrades are focused on enhancing the occupier experience and improving ESG performance, targeting EPC A rating on each asset, as well as net zero carbon in operation.
DFI and Argo will continue to source investment opportunities, focusing on supply-constrained urban logistics markets in and around the U.K.’s largest cities.
Strong opportunity to create further value
Jonni Glick, Vice President at DFI, says, “We have been monitoring the European logistics sector for some time and the recent rerating has provided us with an opportune moment to enter the market via the acquisition of two U.K. portfolios, capitalising on the geography and sector where values have repriced fastest. We believe there is a strong opportunity to create further value in our portfolio through considered asset management to both capture substantial rental reversion potential and by investing capex to improve the environmental performance of the properties. We are excited to work with the exceptional team at Argo, who have a strong track record assembling, managing and exiting logistics portfolios, and we look forward to building out the platform further together.”
Gavin Neilan, Co-Managing Partner and CIO at DFI, adds, “Building scalable platforms in supply-constrained fragmented sectors has always been integral to DFI’s investment thesis. Our multi-disciplinary team has significant experience creating additional value through active management to create high-quality portfolios that appeal to institutional investors, as demonstrated by the successful exit from our Blækhus Danish student platform last year. With this latest strategy we are able to capitalise on the challenging macroeconomic backdrop to make an investment in the U.K. urban logistics sector that benefits from attractive market fundamentals.”
Crispin Gandy, CEO at Argo Real Estate, says, “We are excited to buy these two portfolios, offering quality core plus assets underpinned by strong fundamentals, in supply-constrained markets with structural tailwinds and at sub-replacement cost. We look forward to driving performance through our asset management strategies.”
