DFI and Argo jv sets £400m target for urban logistics platform

Deutsche Finance International and Argo Real Estate have teamed up to launch a UK urban logistics platform targeting £400m of value in the next few years. The jv has already bought 11 properties for £177m totalling 1m sq ft through two separate portfolio deals. Locations include London, the South East and Manchester. It is understood six of those properties were bought from Tesco Pension Investment for £95m in a deal that closed in May. The remainder were bought for £82m from workspace operator McKay, which exchanged in May and completed at the end of last month. The properties are 90% occupied, with a single vacant facility lined up for a “comprehensive repositioning”. A 147,000 sq ft facility in Theale (pictured), let on a long lease to Amazon, is among the properties. The overall portfolio’s existing market rent is more than 80% above the average passing rent, with a WAULT of 5.7 years. Tenants including Royal Mail, Greencore, GXO Logistics and Aldi. The jv will undertake a circa £30m asset management programme to capture rental reversion potential, enhance the occupier experience and improve ESG performance. The upgrades will target EPC A ratings and net zero carbon in operation. DFI said market illiquidity and repricing provided a “window” to allow it to “enter the sector at a level where it believes it can deliver opportunistic returns for its clients while taking [core-plus] risk”. It said it had previously been unable to align pricing with its return requirements over the past few years. It added that logistics is a “conviction asset class” underpinned by “strong occupier fundamentals” , “record low vacancy rates”, a “limited pipeline of new development and, in many areas, a reduction in existing supply as space is lost to alternative uses”. DFI vice-president Jonni Glick said: “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 UK 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.” Gavin Neilan, co-managing partner and chief investment officer at DFI, said: “With this latest strategy we are able to capitalise on the challenging macroeconomic backdrop to make an investment in the UK urban logistics sector that benefits from attractive market fundamentals.” Argo Real Estate chief executive Crispin Gandy said the two portfolios offer “quality core-plus assets underpinned by strong fundamentals, in supply constrained markets with structural tailwinds and at sub replacement cost”.  Gavin Rabinowitz, founding director of Argo Real Estate, said: “With the repricing of the sector the fundamentals look compelling. With further quality pipeline on the horizon, we are excited by the prospect of scaling the platform.” To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews Image: PR