Hines has agreed a joint venture that will see it enter the UK logistics market in a bid to take advantage of the growing occupational and investor demand for last-mile units.
It has linked up with developer Chancerygate to form a 50:50 partnership which is aiming to build a portfolio with an end value of around £100m. Subject to market conditions it is likely that the joint venture will subsequently be substantially expanded.
The initial portfolio will span five to six multi-let sites across the country, as well as in Dublin, that will total around 1m sq ft. Each site will be of between three and 10 acres and have capacity for between 60,000 sq ft and 300,000 sq ft.
The pair already has four sites under offer and expects to have purchased a full pipeline by the end of the year. It is anticipated that the sites will take 18 months to two years to build out. It will target opportunistic returns of 15% -20%.
The joint venture will speculatively develop the schemes and will look to sell them quickly to owner-occupiers or institutions once they are let in order enhance returns rather than retain them as a platform or income stream. The capital from both parties is coming from their balance sheets.
For Hines the joint venture will be led by Greg Cooper, director of industrial and logistics, who joined from Anglesea Capital in June.
In the UK and Ireland Hines has traditionally focused on major office development projects and retail but over the past 18 months it has been looking to extensively diversify with moves into the student accommodation and build-to-rent sectors, which have now been followed by a play for the industrial market.
Ross Blair, senior managing director and head of Hines UK, said: “Student housing aside, our developments have traditionally been large office projects and it is nice to have development where you can keep turning the wheels. Once the first £100m is committed hopefully we will be able to recycle it quite quickly and deploy more. That’s the big attraction for us.”
Although turning over capital quickly is the aim of the initial venture it is possible that it could mature to a more core-plus strategy that would develop to hold.
Richard Bains, managing director of Chancerygate, said: “I wouldn’t say it’s beyond the wit of man with some of the capital Hines has that we couldn’t look at [building a platform business or a portfolio to hold] but a major part of our business model at the moment is being able to build and sell to owner occupiers.”
The multi-let industrial market has already seen yields tighten dramatically and rents soar over the past two years but Bains does not have concerns that the sector will see a slowdown.
“I keep a really close eye on the occupational side because that’s what drives things. We have got eight projects on site totalling 2m sq ft so we have a lot of visibility and at this point in the cycle, with the sector we are working in and the unit sizes we are building, I don’t have a concern. We are still pre-letting and pre-selling quickly and are usually getting out faster than our appraisals. Rents are still moving in the right direction, although we don’t think will be another huge jump.”
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