First Panattoni has big plans. The new European-backed platform, created when continental logistics giant Panattoni bought West Midlands platform First Industrial, has ambitions to become the largest speculative industrial developer in the UK.
It has outlined ambitions to commit £300m to buying land in the UK, and is looking to capitalise on the growing demand from e-commerce companies for facilities to service last-mile deliveries and aims to build up to an annual development target of 3m sq ft a year.
However, it is entering a challenging market. Planning laws are tougher and land supply tighter in the UK compared with mainland Europe and, in order to build up a successful platform, First Panattoni will have to modify its approach accordingly.
Working with First Industrial will help give it insight to the UK market and combined, chief executive Matthew Byrom believes the new company will have both the expertise and the manpower to become one of the UK’s largest developers, rivaling the likes of IDI Gazeley and SEGRO.
Why now
The timing of Panattoni’s acquisition of First Industrial seems to be mutually beneficial. It gives Panattoni the local market expertise, and provides First Industrial with a funding boost to expand across the UK into new emerging markets.
“There is a very good strategic link in terms of Panattoni breaking into the UK and also First Industrial upscaling,” says Byrom.
A market source said: “Space in the UK is pretty congested, but as a large organisation with the skill set that it has in Europe, it makes sense for them to have a UK presence.
“The UK market is currently showing attributes that much of the other markets don’t because there is an acute shortage of stock and strong rental growth at the moment. So in that respect, it is a good time for a development-focused company, but it can be long going through planning. Land is harder to acquire than in Europe, so they are wise to have a partner.”
Although this is Panattoni’s first foray into the UK market, Byrom believes that both businesses have a like-minded approach and will work well together.
“They are both customer focused, entrepreneurial businesses at heart and both are privately owned. I think that the way we conduct ourselves in terms of our integrity and long-standing relationships with customers is very similar. We see ourselves becoming one of the largest industrial developers in the UK over the next two to three years.”
Strategy
First Panattoni is going to focus on speculative development, which is currently buoyed by a healthy occupational market.
“Every agent we speak to tells us that there is a shortage of spec product, and every customer we speak to says they get frustrated because the product is not out there,” says Byrom.
First Industrial previously focused on the West Midlands, but now with a £300m funding injection, the new business will look for opportunities throughout the UK, particularly in the South East, well known for being one of the most lucrative industrial markets.
“We need more market penetration throughout the UK in the same way that Panattoni has targeted the markets throughout Europe,” he says.
It will focus on delivering product for the growing demand in the e-commerce sector. There may even be the opportunity to bring some of Panattoni Europe’s previous clients on board, the most high profile being Amazon.
“The huge momentum and drive is going to come from e-commerce, and Panattoni historically has a very good relationship with Amazon. Our business plan is to be at the retail end of the industrial market.”
To stand out from the competition, the developer will be thinking carefully about the product it is going to deliver. E-commerce companies have very particular specifications, particularly for their last-mile assets. Developers looking to compete in this sphere need to build speculatively to the highest possible standard.
“We need to look very closely at what we are building,” says Byrom. “It is not just building the right place, but building the right space.”
E-commerce companies are now requesting more loading bays to facilitate more orders through their distribution hub, which has seen developments change shape from the traditional big box into more elongated structures. Many now require mezzanine levels to accommodate additional storage space, such as Amazon’s new hub at Verdion’s iPort in Doncaster.
First Panattoni has ambitions to build 3m sq ft a year, but will likely take two to three years to reach that target.
“It is not going to happen overnight,” explains Byrom. “That £300m is a first phase facility, and we are already talking to investors about the next wave.”
Although the demand is there, in comparison to Europe, industrial land is harder to come by. Working closely together will be key to ensuring that the platform works.
“Every market is different and every market has different characteristics. Panattoni’s great skill and why it partners with people with local knowledge is because it respects that one size doesn’t fit all in terms to approach to business.” First Panattoni intends to take the best of what both Panattoni and First Industrial can offer.
In its operations in Europe, Panattoni often fast-tracks development by undertaking portfolio deals with investors to fund the next few assets in its pipeline – something it may also consider doing here.
“I like the idea of doing a strategic land purchase, whether it is buying out a development company or funding other development pipelines, but at the end of the day, we want quality assets. Yes, we want volume, but we have to make sure that what we are buying with any portfolio or any company sale provides us with the right product.”
UK market
Although the UK and European markets operate differently, Byrom believes there is great opportunity and wants to take up a significant slice of the speculative development share, which he does not think anyone else is currently doing to a sufficient scale.
“We feel that there is an opportunity to spec build in the UK that isn’t being taken strategically by any of the larger developers, so that is going to be our route into the market.”
E-commerce giants are currently driving demand for product of 500,000-600,000 sq ft, of which there is limited existing stock. This demand is unlikely to slow down.
“Amazon and the likes will execute their business plans and there will be demand. It never ceases to amaze me how the e-commerce phenomenon carries on growing, but there is huge opportunity with new entrants coming to market. I think that we are at the bottom of the curve rather than the top.”
Now that Panattoni has made its way into the UK market, other European platforms such as P3 or GIC may look to do the same. However, Byrom says they could find this a challenge.
“The market is thinning,” he says. “Panattoni is the largest privately owned developer in the world. I think we are going to make it much more difficult for someone else to squeeze in.”
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