June 4, 2013 5:11 pm

Norway’s oil fund snaps up £250m portfolio of UK warehouses

A customer exits a Tesco Plc store in London, UK©Bloomberg

The world’s largest sovereign wealth fund has snapped up a £250m portfolio of suburban warehouses in the UK in a deal that highlights big investors’ shift away from “trophy” property assets.

Norges Bank Investment Management, Norway’s $720bn oil wealth fund, confirmed on Tuesday that it had agreed to buy the 11 warehouses, which are used as distribution centres for retailers including Tesco, Primark and the Co-op.

NBIM’s decision, which will see it buy the properties through its partnership with US landlord ProLogis, reflects fierce competition for prime real estate and the negative impact it has had on yields. The warehouse portfolio will yield 6.3 per cent, compared with yields that have dropped below 4 per cent for many office blocks in the City of London and West End.

The deal is the latest in a series of NBIM’s ambitious bets on the global real estate market as it pursues its ambition of having 5 per cent of its assets in property within a few years. In the six months to March this year, the fund went on a property spending spree that marked a more than 10-fold increase from the same period a year ago. However, the total allocation to the sector still represents only about 1 per cent of the fund’s total.

Yngve Slyngstad, NBIM’s chief executive, said the challenge facing any large buyer of property is that “there is not as high a turnover in the real estate asset class as you would expect. Leveraged investments are not the ones being sold at the moment. Over time it is natural that the ownership of real estate will change from the current pattern.”

The move into the industrial property sector is a departure from the early real estate investments made by NBIM, which included buying a 25 per cent stake in London’s Regent Street from the Crown Estate, the property empire managed for the Queen.

The NBIM/ProLogis partnership acquired the warehouses, which have a floor area of 2.4m sq ft, from LondonMetric, the UK property group recently born from the merger or London & Stamford and Metric Property Investments.

Patrick Vaughan, chairman of LondonMetric, said: “We have a number of investment acquisition opportunities agreed and in solicitors’ hands which will allow us to reinvest, replace and grow our income quickly.”

Jones Lang LaSalle advised the joint venture between ProLogis and NBIM, while LondonMetric was advised by Dowley Turner Real Estate.

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