Online shopping and steady returns led Canada Pension Plan Investment Board to its latest European investment.
As online buying gains popularity and the flow of goods to Asia continues to swell with consumer demand, CPPIB is partnering with two other investors to build new transport hubs in Britain that store and help move goods.
The three-way partnership with a property group and a Dutch pension fund will form Goodman UK Logistics Partnership, which will look for logistics and industrial development opportunities. The project will take an initial £200-million ($400-million) commitment from each partner, giving the vehicle an overall investment capacity in excess of £1-billion, including debt.
"What we're seeing is that logistics centres, with the rise of e-commerce and the movement of goods are increasingly important in the supply chain," said Andrea Orlandi, head of real estate investments in Europe at CPPIB. The fund already has logistics businesses in China, Japan, Australia, Brazil, and the U.S.
This will be the pension fund's fourth investment partnership alongside Australian company Goodman Group, one of the biggest industrial property firms that develops, owns and operates warehouses, logistics hubs and business parks around the world. Clients include Ford, Unilever, and Verizon, according to the company's website.
A Dutch pension fund APG Asset Management (APG) will also take a stake in the venture.
"For us it's great to be able to form a direct program in the industrial space because our portfolio to date has been a bit more focused, in Europe at least, on retail and offices," CPPIB's Mr. Orlandi said.
To start with, the portfolio will invest in two initial developments in London and Birmingham for a total of 590,000 square feet of space, which comes from Goodman's existing development initiatives. These are distribution hubs where goods are stored before being moved down the supply chain.
"The advantage of the United Kingdom is it's a developed market. The economy is larger [than that of other markets starting to develop more logistics spaces], therefore there are more goods being moved around," Mr. Orlandi said.
Taking on that development can boost returns for investors, but CPPIB and its co-investors would also consider buying distribution hubs that need to be redeveloped or updated as companies look for larger spaces with higher ceilings and locations that will reduce their transport costs.