Middle East investors take Brexit hedge with the UK's industrial property sector

Middle Eastern investment into western commercial property fell more than a third in 2018 as a result of concerns over Brexit
Middle East investors take Brexit hedge with the UK's industrial property sector
Despite challenges posed by Brexit, experts still believe investment in UK real estate remains lucrative
By Alicia Buller
Sun 30 Jun 2019 03:36 PM

British investment company JR Capital has predicted a spike in interest in UK commercial property assets from Middle Eastern buyers.

John Collier-Wright, managing director of the London-based property investment firm, says: “Prior to 2008, our clients favoured riskier deals, such as financial markets or private equity.”

He tells Arabian Business, “But since the global economic crash, yields on real estate have gone up and interest rates have come down, so all of a sudden, income generating commercial assets became very attractive to our client base.”

All of a sudden, income generating commercial assets became very attractive to our client base

JR Capital is a multi-family office business with a largely Middle Eastern client which has concluded over £2bn ($2.51bn) of transactions across all sectors since 2005.

The firm has recently partnered with industrial developer and asset manager Chancerygate to raise a £100m ($125.3m) fund from Middle East investors targeted at the UK’s industrial and logistics sector.

The first close of the fund has raised $31.3m of equity from JR Capital’s Middle East-based private and institutional client base. This gives Marylebone-headquartered Chancerygate an immediate $62.7m to deploy within London and the South East. The next $31.3m of equity is being raised by the end of summer 2019.


John Collier-Wright, founder and managing director of property investment firm JR Capital

The $125.3m fund has a five-year life and will target multi-let industrial investments across the UK in lot sizes of $6.27m to $18.8m. The strategy of the fund is to assemble a geographically diversified portfolio of assets across the kingdom and generate secure income from a highly diversified tenant base.

Middle East investors hedge for Brexit

Collier-Wright says the firm’s clients have a strong appetite for UK commercial property because they see the defensive nature of the asset class as a hedge against the continued uncertainty surrounding Brexit.

The managing director tells Arabian Business: “We are seeing Middle Eastern investors buying secure income producing assets in the commercial sector. The days of single-tenanted long-lease deals with four cheques are on the wane, because our clients prefer to have a diversified customer base.

We are seeing Middle Eastern investors buying secure income producing assets in the commercial sector

“Middle Eastern investors traditionally preferred high yielding assets, which tended to be in the retail and leisure sector. But as we know, the retail and leisure markets haven’t performed well in the last two years, so they are now less appealing. If a single tenant goes bust, it’s problematic and our clients see that as a risk.”

Collier-Wright explains: “We believe the multi-let industrial sector is still undervalued. There is a lack of supply of small to mid-sized industrial units across the UK, coupled with an ever-increasing demand from a better-quality tenant base. The shift to online commerce and the need for storage and last-mile logistics space will inevitably continue to drive demand and rents.”

E-commerce drives warehouse demand

Michael Ferris, head of investment at JR Capital, adds: “With significant increases in online shopping, we expect this structural shift in the way we consume to continue to have an impact on demand for regional light industrial, warehousing and distribution assets over the next cycle.

“We are also attracted to the granular nature of the tenant base and the fact it’s the cheapest commercial space on the market, both of which make it a highly defensive strategy.”

Chancerygate currently oversees $275.8m of assets nationwide across more than 4.9 million sq ft of commercial space in 355 industrial, retail, office and leisure units.


Michael Ferris, head of investment at JR Capital

Chancerygate director and head of asset management, Rory Finnan, says: “The investment case for the multi-let industrial sector remains compelling with supply diminishing and demand remaining strong despite the challenges of Brexit.”

Overall, Middle Eastern investment into western commercial property fell more than a third in 2018 as a result of concerns over Brexit, which stifled demand, according to real estate consultancy JLL.

Values of UK commercial property have been affected across the board since the Brexit vote, according to JLL.

Middle Eastern investment into the US and Europe fell 36 percent to $5.8bn in 2018, compared with $9.1bn in 2017.

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