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Oxford makes debut direct European logistics buy to kickstart £3bn drive

30 sept 2020

Acquires under pressure airline’s London complex and links up with development partner making UK entry.

Oxford Properties has made a dramatic entry into the direct European logistics market, buying British Airways’ Heathrow campus to undertake a major redevelopment project, React News can reveal.

The OMERS-backed Canadian giant is to invest at least £110m into the project that will be leased back to the under-pressure airline for between two and five years.  

The 15-acre project on the east of the airport’s perimeter will be undertaken alongside development partner Logistics Capital Partners, which is also making its debut in the UK logistics market. 

The ultra-prime site is expected to include a variety of uses including multi-storey warehouses, which could be viable given the intense demand for urban logistics in and around the capital, data centres as well as facilities to take advantage of the site’s airside access.

Severe turbulence for BA 
The timeframe for the redevelopment of the site, which will be “technologically advanced and environmentally sustainable” will ultimately be determined by the duration that BA opts to leaseback the campus for.

The complex known as Cranebank is currently home to 440,000 sq ft of buildings, which include BA’s training centre for pilots and cabin crew, but it is likely that given the demand and trends in the sector that the site will ultimately be far more densely redeveloped.

British Airways is currently in a critical financial state, having made around 7,200 job cuts and retired its Boeing 747 fleet as a result of the COVID-19 pandemic, which has resulted in a mass reduction in air travel. 

Its chief executive Álex Cruz told a transport select committee earlier this month that “we are taking every measure possible to make sure we can actually make it through this winter. We don’t see a short-term coming-back of our passengers” and that “there is no data to support that this is a temporary effect for the airline situation”.

Taking a direct approach 
Whilst Oxford has been steadily increasing its exposure to the logistics sector over the past few years on a global basis, it has only done so thus far in Europe indirectly, in 2018 having committed £200m of capital into a GLP fund dedicated to building out the landbank of the Gazeley platform the Singaporean firm acquired the previous year for €2.4bn.

Oxford now plans to invest a total of £3bn of capital, including debt, into the sector in Europe in the next five years, focusing predominantly on direct acquisitions. Having made up only 4% of Oxford’s global portfolio since the start of 2018, logistics now accounts for almost a third of its deployed equity as it joins the growing pool of investors seeking to increase their exposure to the sector that is underpinned by growth in online consumer spender.

At the start of last year Oxford bought US platform IDI Logistics alongside Ivanhoe Cambridge for $3.7bn and was a cornerstone investor in Hong Kong-listed ESR’s $1.6bn IPO last November.   

James Boadle, head of UK and head of logistics & residential for Europe at Oxford Properties, told React News: “When we had our first logistics exposure in Europe it was at a point of time when we were less familiar with the asset class and with having an existing relationship with GLP there was the opportunity to participate in one of their development-led, big box funds and that was a natural step for us to dip our toe in the water.

“We have been building our business here and we are well established and have people on the ground in London, Paris and Berlin and we understand the core markets of Europe and we know how the sector works through both our investment with GLP and our experience globally. It is a natural evolution to move towards a more direct approach but partnering with a best in class operating partner in LCP.”

A force on the Continent arrives in the UK 
LCP, jointly led by managing directors James Markby and Kristof Verstraten, has been one of Europe’s most successful development partners in Continental Europe in recent years. In July it agreed a €200m forward funding deal with DWS for a new 1.75m sq ft facility in northern Italy that has been let to Gucci and Yves Saint Laurent owner, Kering Group. 

In February it recruited James Pagdin, the former Tritax and BNP Paribas Real Estate executive, to become its head of UK as it looked to make headways in the country. It operates in seven countries across which it will be undertaking 14m sq ft of projects in the coming year.

Markby said: “We made our intentions for the UK public at the start of the year when we hired James Pagdin, who has been front and centre on this deal, in the knowledge that we had our fingers on certain opportunities and it was just a matter of time before we created a more formal pipeline. We are absolutely delighted this is our first deal here with a partner like Oxford and such a highly competed for site – we really couldn’t have wished for a better combination.  

“The UK does definitely have some dimension to it that make it harder for us to get into, mainly because of more expensive land that needs to be taken on on a larger scale often on a speculative basis in order to create a pipeline of developments. In Europe it’s been much easier to lock in smaller amounts of land, often with options, and that simply isn’t possible in the UK where there is also a more complicated planning system.”

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