London-based pan European real estate investment manager Vengrove focused on industrial and logistics, affordable housing and operational real estate. Chief executive Ross Taylor discusses making decisions across three geographies, occupier trends and defence-related demand.
Can you describe Vengrove's approach and core strategies?
We define ourselves today as a pan-European real estate manager, with local offices in London, where we're headquartered, as well as Paris and Munich. We invest in a few core strategies. One is pan-European industrial and logistics, which is certainly our most dominant strategy and what we probably have the best reputation for. UK affordable housing is another core vertical for us, and then we also make select investments in operational platforms,
But what unifies those three strategies is a belief that performance comes from disciplined execution and decision-making, which ultimately is about having an institutional capability and also owning the whole value chain, so depth of vertical integration.
The group expanded into Europe three years ago after being founded in the UK in 2013 – was this always the plan, and where's next?
Our drive to go into Europe was because of ambition, that's always been the ambition of the business. Secondly, I think when you've been fundraising long enough, you start to understand or have a better understanding of what investors want. Of course, you have to fit into their playbook rather than the other way around, and it was clear that demand, from an institutional perspective, was for pan-European managers and I think that's proved right from our experience over the last few years. So, that was a big driver for us wanting to move into Europe.
I think if we meet the right person or people who can launch [the next] country for us, they believe in what we're doing, believe in the vision, want to share the risk with us, then we'll do that rather than making a strategic move [where we] target a certain country for certain reasons.
In what locations are you focused across the UK and across Europe?
Light industrial and mid-box is our focus so, in the UK, that means from a location perspective, London and the south east, Birmingham, Manchester, there are certainly more institutional quality locations than that in the UK, but that's our focus. In Germany, it's really the big seven cities, it's a much bigger market in Germany, [also] the Rhine-Ruhr region. And then France, it is really just Paris to Lyon, which are our two core markets from a location perspective.
We want to buy the urban locations that you'd expect when it comes to light industrial and mid-box, and it's both development-led and buying second-hand, Grade A units that we can improve both from an asset quality perspective and an income profile perspective as well. "If you look at the circa €55 million [£47.2 million] of assets we've acquired recently in Birmingham and Warrington in the UK, and Leverkusen in Germany, they follow this theme – great locations with favourable supply-demand dynamics, really good physical fundamentals and in place income from good credits, coupled with levers to grow that income and create value.
"Speculative development has reduced and that's only a good thing for standing stock and rental growth..."
How do you see the UK industrial market today?
You can generalise, but I think in today's market you can't – the market is very nuanced. So, for example, in East London there's a huge amount of supply, so you're probably not feeling too good about owning vacancy in general in that location. Whereas, in other parts of London, other parts of the UK, it's much more positive. But, in general, the occupational market has been robust. We're still seeing rental growth.
It's not just the UK, but it's also a phenomenon across Europe. Speculative development has reduced and that's only a good thing for standing stock and rental growth prospects for that type of investment. The fundamentals are still there for industrial and logistics in the UK, the problem is everyone knows that...industrials is still a safe haven for want of a better expression from a sector-picking perspective.
In May, you sold Erdington Industrial Park, a 13-unit estate, to Indurent after three years – can you explain that disposal?
We acquired that, which was an existing light industrial estate, coupled with a consented site for two mid-box units in 2023, which we proceeded to develop. We performed a typical multilet business plan, driving rents, refurbishing units, bringing up the ESG credentials. We decided to split those two assets [as] they don't typically fit the same profile of investor.
We have leased one of the mid-box units, we're hoping to lease the other one as soon as we can, and then we'll look to exit that. So that sits within a discretionary vehicle which has a typical three-to-six-year hold period. So that probably explains why we exited in terms of opportunity cost and the desire to return equity.
Increased defence spending across Europe is generating new interest in industrial units – is this something you are seeing across your portfolio?
It's going to be interesting. I think we're already seeing it in our ownership of some of our estates in Swindon, the trickle-down effect of the supply-chain around the huge new government leasing of the Panattoni unit, and we're seeing the benefit of that now in terms of enquiries coming through of parties in the supply chain. But that's the first time we've started to see it in the UK.
In Germany, where the narrative around defence spending is even more advanced, but where we don't currently have any vacancy, we're already seeing defence-related enquiries where we have future new-build supply coming forwards.
We're obviously very hopeful that defence will be another new or newer occupier for the industrial market. It's always been there, it's maybe not been a category in itself, if that makes sense, it has been a part of manufacturing. But I think, now, people are seeing it as its own category alongside ecommerce and other types of users.
What are you feeling confident about over the next six to 12 months?
I don't think you can bank on anything at the moment. I think if you look at the last leg of the cycle after the GFC, when the market bottomed, it started to recover relatively quickly and that core, core-plus capital came back and was a buyer for the value-add investors once they delivered their business plans, that just hasn't happened this time around. So, investors that invested at the bottom of the market three years ago, and naturally coming into their exit window may be disappointed when it comes to performance.
So, on that basis, I think what you can, to an extent, rely on is income. Our focus is on reversion that we can capture, yield on cost is important to us, not just reversion which, if you can't capture, doesn't really help. Outside of German logistics development, a general income focus over capital growth, I think, is something that we'll bank on when we're thinking about investments over the course of the next 12 months with an understanding that we don't know what's going to happen, and it can change from week to week.