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Chinese fund to channel investment into UK warehousing and logistics

By Cecily Liu in London | | Updated: 2016-10-24 21:33

A Chinese fund intends to channel 1 billion yuan of investment into the UK's logistics and warehousing industry, to meet the UK's desire to strengthen logistics capacities post Brexit.

Shanghai based private equity firm PGC Capital signed an agreement on Monday with the UK's McCafferty Asset Management Group to launch a UK Logistics Warehouse Investment Scheme, targeting Chinese institutional investors. The actual launch date is yet to be announced.

PGC Capital will extend this scheme to Israel, Germany, South Africa and Switzerland, after successfully testing the water in the UK. McCafferty Group is in charge of selecting actual warehouse projects for investment.

Sangeeta Khorana, a professor of Economics at Bournemouth University, said this scheme comes at a time when the UK is building its own logistics strengths, realizing it can no longer rely on European logistics centers like Germany and Holland for international trade, if it leaves the European single market.

Hence British ports like Liverpool, Southampton Dover and Brighton, as well as London airports and Manchester Airport all require more logistics capacity, said Khorana said.

This week the UK government is due to give green light to adding a new London airport runway. Manchester Airport is meanwhile in process of constructing its 800 million pound business hub around the airport, including a big logistics capacity boost.

PGC Capital's move came at a time of Chinese exporters increasingly building their own logistics centers in the UK to improve supply chain efficiency and add customer service to in the UK, said William Franklin, founder of the London-based China Investors Club.

"We've seen growing Chinese exporters setting up warehousing facilities in the UK particularly in the past 12 months, especially medical devices, advanced machinery and raw materials for the transport sector like metals and steel," Franklin said.

"Since the referendum vote we've seen inquiries from these Chinese exporters grow two-fold. They're keen to build UK warehouse facilities to avoid sending products to EU logistics centers first," Franklin said.

Franklin added that Chinese exporters' warehousing investment in the UK fits into the story of growing Chinese trade along the Belt and Road countries, and he expects warehousing demand along all those countries to grow.

PGC Capital, founded in 2015, is best known in the UK for funding the development of Birmingham's Jewel Court, a project that will build 77 luxury apartments, with construction to finish in 2017.

Denise Li, CEO of PGC Capital, said the warehouse scheme already has in mind 3-5 potential warehouses near Manchester. It will raise 1 billion yuan in a year, and investment will be made with a time horizon of more than 5 years.

The fund will be aimed at Chinese institutional investors and individuals who qualify under the government's Overseas Direct Investment (ODI) scheme, which allows them to invest overseas bypassing China's capital restrictions.

Charles Whittle, CEO of McCafferty Group, said, said he is confident about this scheme, judging on warehouse demand.

The vacancy rate of UK warehouses decreased to 7.1 percent in 2016 compared with 18 percent in 2012, while unit rents have grown rapidly at an annual rate of 5 percent, Whittle said.

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