ANALYSIS: Logistics platforms proliferate across Europe

New logistics platforms continue to spring up across Europe at a time when the more established players are busy consolidating their businesses.

Industrial and logistics have become the new in-demand sector in Europe today, according to Iryna Pylypchuk, director of global research at CBRE. Speaking at a recent PropertyEU Outlook briefing, Pylypchuk said actual investments in industrial have so far been less than half of investor intentions. ‘This sector will really open up in 2015 and become a bigger part of the investment market,’ she predicted.

Deal activity has so far been strong this year, with €6.1 bn of investment in the first half of 2015. Blackstone’s European logistics platform Logicor has been by far the most prolific logistics buyer in Europe in recent years and again tops our own ranking of biggest dealmakers in the first half of the year after forking out over €1 bn on portfolios spanning the UK, Germany, France and the Netherlands. In July it reached agreement with Norwegian fund manager Obligo Investment Management to acquire a €3 bn European portfolio in an off-market deal. The portfolio has a broad geographical spread with a concentration of assets in Norway, Sweden and Germany as well as elements in Denmark, France, Latvia and the UK. Around a third of the portfolio is made up of logistics assets.

But Blackstone is by no means the only newcomer pushing for a piece of what has traditionally been a very fragmented market in Europe. In the first half of this year, a number of heavyweight investors announced intentions to join the fray.

Value-add opportunities
Earlier this year Singapore’s sovereign wealth fund GIC set up a €300 mln joint venture with industrial specialist Exeter Property Group to invest in logistics properties across Europe. GIC already has an indirect stake in the logistics sector through listed companies like Goodman, but it is now aiming to build up a portfolio of value-add opportunities at core locations in key European distribution hubs which offer easy access to motorways, water ports (both inland and sea faring), airports and rail nodes. GIC and its UK partner believe that demand for logistics space at key distribution hubs will increase in the long term due to the growing trend of e-commerce, supply chain reorganisation and the increased use of third-party logistics providers.

Malaysia’s Employees Provident Fund (EPF) has even bigger ambitions. The sovereign wealth fund is understood to have entered into a new logistics joint venture aimed at investing up to €1 bn in German logistics assets over the next three years. According to German press reports, EPF - through its European arm Kwasa - has launched a new partnership with German group Dietz targeting logistics assets in Germany as well as in neighbouring countries. As part of the operation, Dietz is transferring a portfolio of around €200 mln to the joint venture and will also be responsible for future acquisitions and property management. Dietz did not respond to PropertyEU’s request for comment.

If confirmed, the move would mark the second European logistics platform to be launched by EPF over the past 18 months. Last year the Malaysian pension fund teamed up with international logistics group Goodman to invest up to €500 mln in the German logistics property market. The partnership, dubbed Kwasa Goodman Germany (KGG), has an initial equity commitment of €500 mln and has already acquired €213 mln of assets in Germany (CHECK THIS FIGURE). It was established as a 70/30 joint venture with EPF holding the majority stake. The seed portfolio included seven properties, three of which were sourced from the group for €105 mln and the remaining four from Goodman European Logistics Fund (GELF) for €108 mln.

Spanish partnership
US private equity group Colony Capital likewise sees potential in the sector. In January it announced that it is teaming up with Spanish mall operator Neinver to create a joint venture targeting €200 mln at European logistics. It has already signed the first acquisition in the Iberian Peninsula with the purchase of a portfolio of 16 logistics sites in Spain and Portugal in a sale-and-leaseback transaction. The combined area of the facilities is almost 110,000 m2.

Neinver is better known for its outlet centres, but since its foundation in 1969, the Spanish company has developed more than 1.5 million m2 of industrial property, the groups chief financial officer Carlos González recently told PropertyEU. ‘Logistics in Spain and Portugal now has greater growth potential than almostany other [real estate] market, since traditionally it is one of the sectors that benefits first from the economic recovery. We think this is the right time to invest in profitable, productive, assets that are under development. That is the purpose of this strategic partnership with Colony Capital.’

Initially the JV will focus on the Iberian Peninsula, but it is also exploring other options in the broader European market, he added.

An even bigger international platform may be in the works in Czech Republic where local developer CTP has signalled it is ready to sell its entire Czech portfolio comprising assets worth some €1.8 bn. A strategic alliance between an international buyer and CTP would create a new logistics development platform that could use the existing Czech portfolio as a springboard to expand into neighbouring markets.

This strategy would mirror what has happened across the European logistics development sector in recent years as big equity players have teamed up with specialist developer-owners. Examples include US-based Prologis’ PELP fund in Europe which has financial backing from Norway’s Government Pension Fund Global; P3 Logistic Parks which was acquired by TPG and Ivanhoe Cambridge; Gazeley which was taken over by Brookfield Property Partners; Segro which teamed up with Canadian pension group PSP Investments; and Sydney-listed Goodman Group which acquired European developer Eurinpro and is itself backed by sovereign wealth equity.

Other players that have been ramping up their logistics businesses across Europe include CBRE Global Investment Partners (GIP) which in June acquired the so-called Viking logistics portfolio from Warburg Invest HIH and US investor TIAA-CREF for €346 mln. The fund manager is actively pursuing further assets across Europe to add to the 900,000 m2 of Grade A logistics that it now holds in its European Industrial Fund, which it re-launched last year.

EIF is a semi open-ended, non-listed fund with a gross asset value of €467 mln and a target to reach a size of €1 bn. Other investment managers such as Brockton and AEW Europe and UK insurers Standard Life, Legal & General M&G have also been active buyers.

Well-established platforms
Interestingly, the more established specialist players have been conspicuously absent from the latest logistics deal frenzy, at least as buyers of big portfolios. ‘We’re very careful about new acquisitions, the pricing is pretty much up there so you need to exercise discipline,’ Andy Gulliford, chief operating officer at UK-based REIT Segro, told PropertyEU in a recent interview. ‘It is good to be a well-established platform with asset management competence and local offices. That is not easily replicated.’

After boosting its joint venture Canadian pension group PSP Investments to €1.7 bn in the past 18 months, Segro is currently engaged in consolidating and reshaping its platform across the UK and continental Europe, Gulliford said. The focus is on new developments, he added. ‘We have completely reshaped the portfolio in the past couple of years and now we have a growth agenda.’

Earlier this year Segro acquired 90% of Vailog Srl, a major logistics developer in northern Italy, from the majority shareholder FBH Spa for €39.6 mln. Segro said the transaction will allow it ‘to establish an immediate strategic presence in the Northern Italian big box logistics market with opportunities to grow additional scale through development’.

While Goodman Group has pursued an active acquisition strategy in Europe since its arrival in 2006, it too has not taken part in the recent drive over the past 24 months or so by global investors to set up platforms and create scale through major portfolio acquisitions. The focus of recent acquisitions has been primarily on single asset deals, Goodman’s European managing director Philipe van der Beken confirmed. ‘We focus on income potential and re-lettability. As a result we have been very discriminating in terms of quality of location, layout of the building and technical specifications.’

The huge influx on the capital side has coincided with a reduction of return expectations in a low-yielding world, Van der Beken noted. ‘Yield compression is a function of a low-yielding world where there are not a lot of alternatives. We’re seeing an increase in price across all assets that generate cash flow. That’s the scene.’