Private Equity Giant Blackstone In Largest UK Warehouse Deal On Record

The American private equity group Blackstone has completed the largest ever UK deal for a
portfolio of warehouse properties. Blackstone, the world’s largest private equity investor, is
paying £473 million for the portfolio. The seller is New York-listed Prologis, the world’s
largest warehouse landlord.

The warehouse sector, at least at the premium end, has been one of the most attractive
property asset classes in recent years, thanks to the growing influence of ecommerce.
Online retailers increasingly need more, and better, warehouse facilities as they upgrade
capacity and move to minimise delivery times through more extensive networks of regional
fulfilment centres.

Lettings activity for industrial and logistics properties in the UK is set to reach new record
levels, having already breezed past the previous record set in 2016. BNP Paribas Real Estate,
the property letting and sales arm of the French bank, estimated that a massive 13.5 million
sq ft of industrial and logistics space was let in Q3. That’s 73% up on the same period in
2019.

The research only covers properties of at least 100,000 sq ft., which means it focuses on the
top end of the market. Online retailers, and traditional rivals with well-developed
ecommerce offerings have seen revenues soar over 2020 as the Covid-19 pandemic shut
down bricks-and-mortar retail for months on end.

Even outside of lockdown periods, consumers have shown reluctance to visit busy bricks-
and-mortal stores, preferring to order online, where practical. And many consumers who
previously shunned the digital economy, reluctantly forced into getting to grips with online
shopping, are new converts who will now continue to do at least some of their buying
online.

That’s accelerated the already strong trend of ecommerce increasing its market share of
total retail, and led to a surge in demand for the supporting infrastructure. Warehouses play
a central role in that infrastructure.

Commenting on the deal, James Seppala, Blackstone’s head of European real estate said:

“This transaction demonstrates our conviction in the logistics sector, as ecommerce growth
drives demand.”

Another factor BNP Paribas analyst Josh Holmes pin-points as contributing towards the
strong uptick in demand for warehouse space, is Brexit. Commenting for The Times, Mr
Holmes said:

“Attention is also turning to Brexit and the trade negotiations, which may lead to more
demand-side pressures as businesses look to stockpile or bring supply chains closer to
home.”

Prologis is selling the portfolio to Blackstone because the warehouse properties in it do not
fit its core investment strategy, which is logistics parks consisting of multiple properties
located in London, the southeast and Midlands. Paul Weston, the property company’s
regional head for the UK, explains the focus on logistics parks that include amenities for
staff:

“Logistics is one of the few areas today where there is the opportunity for new jobs, so we
want to create the best environment in terms of the buildings that people work in.”