Clarion Partners Europe closes its first UK-only fund

London-based logistics specialist Clarion Partners Europe has raised its first fund exclusively targeting investments in the UK, PERE can reveal.

The European arm of US manager Clarion Partners attracted £427 million ($543 million; €496 million) in commitments from investors for Clarion Logistics UK, which closed at the end of last year after a five-month fundraising period. This places it among the largest UK-focused private equity real estate funds closed in 2023, according to PERE data, and makes it the largest such vehicle to have both launched and closed in the year.

With leverage, the closed-end fund has approximately £650 million of total capital to be invested in a variety of logistics assets across the UK, from last-mile facilities to big-box warehouses. The firm will target core-plus returns, with a similar risk profile to its open-ended pan-European logistics series.

All of the UK fund’s investors had previously invested in the firm’s pan-European series, and comprise institutions from Europe, North America and Asia-Pacific.

According to Alistair Calvert, chief executive officer of Clarion Partners Europe, the firm made the decision to launch its first UK-focused logistics fund at the beginning of last year, when the market looked set to reprice to such an extent that it would represent good value. Prior to that, Clarion Partners Europe had not made any UK investments for a period of around seven years. “We were struggling to convince ourselves that we could find value,” said Calvert.

This changed over 2023. “Pricing has shifted significantly, in some cases up to 40 percent, but at the same time we’ve continued to see fairly strong rental growth. Most importantly, it feels like this is a good entry point in terms of cost basis,” he said.

From an occupational demand standpoint, Calvert acknowledged the UK logistics market is not as compelling as it was two years ago, with vacancy ticking up and a significant amount of underutilized space, typically leased by third-party logistics providers. “This all creates a bit of a drag on rental growth,” he said, but emphasized long-term averages are still healthy and tenant demand remains robust.

The fund had a target size of £400 million and did not employ a placement agent. “We had full take-up for the fund very, very quickly, meaning there was no need to engage with new investors,” said Calvert. He added it was possible the firm would consider another UK-only fund after this vintage. “It’s more difficult to put UK assets into a pan-European fund because of the currency mismatch, so there is some logic to continuing the series.”

Calvert declined to share details of any of the fund’s investments to date, but said the firm was in the process of closing on a sizable number of transactions across the UK. The investment window for the fund is 12 to 18 months.

“Pricing is still very inefficient, with a wide range in terms of seller expectations. But for those assets that are trading, generally you are seeing prices have corrected fully,” he said.

In addition to repricing, the recent stabilization of interest rates will provide further impetus for investors to return to the market, he said, predicting the level of trading in UK logistics to increase from Q1. The consensus now is that rates will remain at the current level for a prolonged period, he added. “There is therefore no reason for those investors to wait longer to enter the market.”

The firm will consider development opportunities with the new fund, but Calvert said there are currently enough opportunities to buy recently developed assets at or below building cost. That said, sustainability factors are “quite a limiter” when it comes to amassing a high-quality portfolio, he added.

“The UK market overall is fairly dated. Around 75 percent of the UK logistics stock was built before 2010. We will undertake some ESG-led asset management, as we are actively doing on the continent, but it has to be the right asset in the right location to warrant the capex,” he said.