Starwood Capital Enters UK Industrial Market With $260M Deal

The company has acquired a 10-property portfolio comprising 1.6 million square feet in urban areas like Oxford, Birmingham and Glasgow.
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Starwood Capital Group has entered the U.K. urban industrial market with the acquisition of 10 industrial properties totaling 1.6 million square feet from an institutional client of Barings, for £200 million, or approximately $260 million. The purchase of the portfolio, which includes properties in major urban areas including Oxford, Birmingham and Glasgow, was made by a Starwood-controlled affiliate.

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Barings will continue to provide asset management services for the portfolio. A subsidiary of MassMutual, Barings is a global financial services firm that provides real estate investment to clients and asset management across North America, Europe and Asia Pacific.

Matthew Parrott, Starwood Capital vice president, said in a prepared statement the portfolio is well placed to capture the growth in the U.K. industrial market. He said the team from the global private investment firm looks forward to partnering with Barings to create additional value in the portfolio and further scaling the opportunity.

Rory Allan, managing director, Barings, noted the firm has been active in the U.K. urban industrial market for more than 15 years and believes strongly in the market’s fundamentals. Citing a chronic supply shortage and strong demand in and around key cities, Allan said in prepared remarks they have already identified a deep pipeline for opportunities in an ongoing investment program with Starwood Capital.

Strong demand for industrial

An Industrial Market Snapshot report for the third quarter in the U.K. from Cushman & Wakefield noted the industrial occupier market remained strong. But investment had slowed due to the ongoing uncertainty about Brexit. The report stated there was £1.4bn (approximately $1.8 billion) in transactions in the third quarter, down 29 percent from the same quarter in 2018. Cushman & Wakefield is projecting a soft start to 2020, because of a recent decline in inquiries about industrial investments. But on the bright side, the firm is expecting prime U.K. industrial market rents to grow by about 2 percent each year over the next five years.

The European industrial market is strong because of high demand and constrained supply in other countries as well. A recent report by UBS Asset Management notes that industrial investors are continuing to build in key markets, where they are reaping benefits of historically high prices. Germany remains one of the hottest and biggest markets, much of that driven by e-commerce that is seeing the development of a variety of assets including fulfillment centers, multi-story properties and last-mile facilities.