SEGRO backs warehouse rent growth

By Liza Helps Property Editor Logistics Matters

THE EXPECTATION was announced in the company’s annual report this morning when SEGRO Chief executive David Sleath said: “In the next three years we expect to increase our passing rents by more than fifty per cent through capturing embedded reversion, leasing vacant units, and developing new space.”

Over 2023 SEGRO saw significant success in capturing rental reversion, with a 31% uplift in rent from reviews and renewals across both its UK and continental Europe portfolios. Around £137 million of SEGRO’s future income growth is underpinned by rent reversion within its existing portfolio, approximately 20% of its current rent roll. Most of this reversion is in the UK and will be captured by the five-yearly open market rent review process.

For occupiers this should be seen as a warning that rent levels despite marked slow down in  take-up over 2023, will remain on an upward trajectory as supply levels say tight.

Sleath explained: “Take-up levels are in line with or higher than pre-pandemic levels across our markets, supported by the key structural drivers of occupier demand which remain very much in evidence. These include the explosion of data and the digitalisation of businesses and society, including continued growth in e-commerce volumes and of demand for data centres; supply chain optimisation to drive cost savings, improve customer service and provide greater resilience; increased focus on sustainability; and urbanisation – the long-term trend for urban population growth which creates greater demand for warehouse space, whilst reducing the supply of available land. 

“This gives us confidence in the outlook for continued rental growth in line with our medium-term guidance of 2 – 6% a year, particularly as supply remains restricted in the near-term due to low levels of vacancy and limited capital availability for developers; and in the longer-term as public policy, particularly in urban areas, continues to favour housing over industrial usage and severely restricts the use of greenbelt land.”

Favourable occupier markets, along with its customer focus and proactive portfolio management, supported new headline rent commitments of £88 million during the period, including £27 million of new pre-let agreements.

With this confidence in what is happening in the market SEGRO  is looking to push on with its development programme. Right now it has a development pipeline with 6.7 million ft2 of projects under construction or in advanced negotiations equating to £71 million of potential rent, 73% of which has been or is expected to be pre-let. In addition 92% of which have been, or are designed to be, certified at least BREEAM ‘Excellent’ (or local equivalent);

Sleath said: “With development, we have continued to favour pre-let projects, remaining prudent in only bringing forward speculative schemes in markets with the tightest supply and the deepest demand. 

“In the UK, we have 1.8 million ft2 of space approved or under construction. Within this are our first multi-level warehouse scheme in West London, two new data centres on the Slough Trading Estate (the second largest hub of data centres globally) and big box warehouses at our logistics park in Coventry. 

“We continue to focus our speculative developments on urban warehouse projects, particularly in cities such as London and Paris, where modern space is in short supply and occupier demand is strong.”

“During 2024, we expect to invest approximately £600 million in development capex during 2024, including £150 million of infrastructure related to our UK big box logistics parks.”

Big box schemes being brought forward this year include SEGRO Logistics Park Coventry and SEGRO Logistics Park Northampton.