23 October, 2019

For every euro that exchanged across Europe for industrial assets in the last two years, nearly 50 cents were part of a portfolio transaction. This is more than double the share in the office sector. Why are portfolios a preferred way to buy industrial property, and who is buying them?

Chart 1 Portfolio deals as a share of total transaction volume (2017-Q2 2019)

Portfolios in EMEA Logistics_graph 1
Source: CBRE Research, RCA

Why are portfolio transactions so prevalent in industrial and who is buying them?

This increasing appetite for portfolio transactions reflects an improved understanding of risk management and a more sophisticated approach for attracting institutional investment.

Warehouses are unusual among commercial property assets in that they often have very few tenants. Often a warehouse will have just one occupier. Owners are exposed to higher levels of risk. Should the occupier vacate at the end of the lease, the owner risks a lengthy void period with no income. Offices by contrast often have a broad pool of tenants. If one vacates, the remaining tenants will continue paying, and the owner will still receive an income. Individual vacancies rarely threaten entire schemes.

What is the impact on pricing?

Industrial assets are well suited to be purchased as part of a portfolio. When bundled, vacancy risks diminish as there are a larger number of tenants, and assets have the scale to attract institutional investors.

There are various competing factors that determine the premium or discount on a portfolio. In cases with a motivated seller, portfolios can be an incredibly quick way to get assets off their books. When this occurs, bundling assets can cause them to trade at a discount. Platform deals are a special case. Platform deals are an internally managed version of a portfolio. These involve many assets and include management infrastructure and the goodwill associated with a company or brand. These tend to attract tighter yields, this is despite the potential buyer pool being smaller for these larger transactions. In practice, the impact on pricing for portfolios is ambiguous. Especially motivated buyers tend to lower pricing. Whilst bundling improves the risk profile of the asset, raising pricing.

Who are the buyers?

The average price of a traded industrial asset was just over £20m in 2018, whereas the average was larger for retail assets and more than double for offices. Individual industrial buildings tend to be too small for larger investors, particularly foreign ones. Institutional investors were the buyers in 94% of industrial portfolio transactions since the start of 2017.

Chart 2 Institutional investment in industrial portfolios across Europe (2017-Q2 2019)

Portfolios in EMEA Logistics_graph 2
Source: CBRE Research, RCA

International and European investors?

Buyers from outside Europe are also active in portfolio deals. Chinese and Singaporean investors have been particularly interested in these industrial portfolios. 99% of Chinese industrial purchases in Europe being part of a portfolio deal and 95% for Singapore. Portfolios can be an excellent mechanism for foreign buyers, with comparatively little market knowledge, to acquire a sizable, diversified stake in an attractive asset class. Investors with less of a presence in a market are also strong candidates for a portfolio purchase.

Chart 3 Top non-European buyers of industrial European assets (2017-Q2 2019)

Portfolios in EMEA Logistics_graph 3
Source: CBRE Research, RCA

Chart 4 Industrial cross-border transaction volumes for European and non-European buyers (2017-Q2 2019)

Portfolios in EMEA Logistics_graph 4
Source: CBRE Research, RCA


Portfolios in real estate are not a new phenomenon. However, capital is becoming increasingly global and these portfolios are finding homes in some of the world’s largest funds. Industrial assets tend to be too small to be attractive for larger investors. Bundling them up spreads risk and provides the scale required by investors.

Markets in commercial real estate are full of idiosyncrasies. Different countries have different legislative frameworks and occupiers have different expectations. As a result, local market knowledge is important in evaluating and managing individual assets. Foreign institutional investors are most interested in portfolios, as they often do not have the local scale and market knowledge required to manage an individual asset. Platform deals are particularly attractive to foreign investors who can rapidly achieve scale in chosen markets. 

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