Investment Completion - DPD

News: Investment News | 19 December 2016

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Private investors have seized the opportunity to enhance portfolio diversification and generate yield by acquiring two strategically-located logistics units tenanted by leading parcel delivery company DPD, through Connection Capital, the specialist private client investment business.

  • Long-term income-producing assets let to high quality tenant with rental growth built-in highly appealing as search for yield continues
  • Logistics increasingly seen as established investment class as demand outstrips supply

Connection Capital says the deal offers access to long-term income-producing commercial property assets, let to a high quality tenant who is operating in an expanding market, with rental growth built in.

The two brand new properties were purchased for a combined total of £14.9million, with £1.6 million of equity coming from Connection Capital’s private investor clients, investing in £25,000 units. 

Located near Lincoln and in Aberdeen, both are situated in areas with excellent transport links by road, rail, air and sea.

The opportunity was secured “off-market” at the development stage by Connection Capital’s property partner, Riverside Capital, and both sites are now fully operating.

The properties were pre-let to DPD group UK prior to completion of construction and have long leases (20 years in Lincoln and 25 years in Aberdeen) with five-yearly upwards-only rent reviews based on open market value.

Returns are expected to be generated by capital growth as well as income, with a target distribution of 5% per annum.

Connection Capital says that with the exponential growth in e-commerce driving demand for well-positioned delivery depots to enable logistics companies to service the crucial “last mile” of delivery efficiently, the outlook for continued investment returns from this sector is strong.

It points out that although demand for such properties is high, there has been an overall decline in net supply in recent years, and this imbalance is expected to drive continued rental growth and investment returns from the logistics sector overall.

As a consequence, logistics is increasingly regarded as an established investment class, with investment levels in 2015 87% higher than the long-term average according to BNP Paribas Real Estate, with transaction volumes in the first half of 2016 also robust. This bucks a trend in the wider commercial real estate market, which experienced a contraction ahead of the UK’s EU referendum.

The strength of the underlying tenant covenant is illustrated by DPD having the strongest possible credit rating from Dun & Bradstreet, indicating a minimal risk of default, and the fact that the company’s growth prospects are strong. For example, DPD plans to invest a further £150million over the next five years to open another 10 depots nationwide.

“Commercial property has long been an attractive component of a diversified private investor portfolio, but in today’s climate with yield from many asset classes so elusive, solid, income-producing assets like these are increasingly sought-after.” Claire Madden, Managing Partner