Panattoni Europe’s purchase of First Industrial sees one of the largest players in Continental logistics without a presence in the UK finally enter the fray.
The firm went as far as setting up a UK office in 2005 and put its first deal under offer before getting cold feet.
The company is likely to bring a different and more aggressive approach to the UK than occupiers and investors are typically used to, taking a bold attitude towards offsetting risk and cost where possible.
Panattoni has outlined ambitions to commit £300m to buying land in the UK and says it will concentrate on speculative development. Buoyed by the country’s healthy occupational market, it is aiming to build 3m sq ft per year and scale up the new UK business, which has been branded First Industrial.
On the Continent, the company is most active in Poland and Germany, as well as the Czech Republic, Slovakia and Romania. At 29.2m sq ft, it developed more new-build logistics in Europe between 2014 and 2016 than any of its rivals.
However, to be successful in the UK it will have to tweak its approach, and director Dudley Mitchell says it is “realistic about the dynamics in the UK property market, which has many established players and operators”.
He adds: “Limited land supply and a slow permitting process means that land is expensive. To penetrate these capital-intensive markets, you need to bid aggressively and spec build.”
Need to know: Panattoni
■ Founded in Sacramento, California in 1986
■ Privately owned by chairman Carl Panattoni
■ 24 offices across US, Canada and Europe
■ Has developed more than 266m sq ft
■ Major focus on build-to-suit
■ Panattoni Europe subsidiary began trading in 2005 and is run by chief executive Robert Dobrzycki
■ UK office located at 50 Liverpool Street, EC2
This is quite different to its tactics in mainland Europe where Panattoni will often work with a local municipality to secure land at a low price in exchange for generating employment. Its offering can be more basic than typically offered by other major developers, meaning that occupiers must be specific about issues such as insulation to ensure that the final offering meets their expected standards.
The company will typically look to work to a slightly lower cost margin than other developers and as a result look to offer highly attractive rents to tenants. It will work with contractors to offset construction risk as early as possible and secure forward purchase agreements for developments once a lease has been agreed.
Panattoni usually markets the deal to a wide range of prospective buyers in order to get the best price it can. To fast-track its development it will sometimes look to undertake portfolio deals with investors to forward fund the next few assets in its pipeline.
Remaining land that it has secured around the sheds that it has built and forward sold is then promoted to the occupier market.
This trader-developer approach chimes with the model of Solihull-based First Industrial.
The company, which should not be confused with US-listed First Industrial Realty Trust, was founded in 2009 by former Prologis development director and head of global development Matthew Byrom and Ken Hall. Backed by entrepreneur and car dealership tycoon Terry Lister, it has developed major facilities for Marks & Spencer, DHL and Amazon focusing predominantly on the Midlands market.
Chairman Carl Panattoni said: “We have always wanted to expand in the UK, but until now we have never found the right partner. Having looked extensively within the market, we found that First Industrial had an excellent underlying business and one that reflected out values and business ethos exactly.”
Panattoni’s purchase of First Industrial leaves GIC-backed P3 as the most obvious European sheds developer that is not active in the UK. Although the company has been scouring the market since it was taken over in November last year, pricing has led it to concentrate on building out its own development pipeline and uncertainty around currency has led it to take a wary view on sterling-denominated assets.
So for now, Panattoni is the UK logistics market’s new kid on the block.
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