Internet shopping revolution powers demand for Segro's warehouses

segro
A Segro warehouse Credit: Richard Leeney

Industrial developer Segro has reported strong results and "tremendous momentum" as demand for new warehouse space from online retailers continues to increase at pace.

In a "record year" for development completions, Segro delivered 4.5m sq ft of new warehouse space. David Sleath, chief executive, said: "The forces of the internet revolution are more powerful than concerns about uncertainty over Brexit." 

The company said its adjusted earnings per share, which ignore capital gains on property assets, rose by 7.1pc to 19.7p in the year to December, thanks to a boost in rental income and a low vacancy rate in its properties. The performance was propped up by the UK, where net rental income rose 6pc, while in continental Europe it fell by 0.7pc. 

A Segro logistics park

Segro's focus is on warehouses in urban areas. Mr Sleath described how the company had "tremendous momentum", due to the huge demand for these sites from retailers, and the expansion of the need for new datacentres in urban areas.

He added: "It's really extraordinary seeing how across many different markets - when Amazon and their ilk come to town - they take a lot of space and disrupt the market and force others to react.

"It looks set to continue for some time. Far from seeing slowdown in demand on the back of the referendum, we had one of our busiest summers on record, in terms of new pre-lets and leases and that has continued into 2017.

"We're not complacent, but the headline of the internet trumps Brexit uncertainty is how it feels. It's how we thought it would be at the time, and it's proved to be the case."

The value of Segro's assets increased by 4.8pc during the year, but its pre-tax profit fell to £426.4m from £686.5m a year ago, due to the value of its property growing at a slower rate than in previous years, when it shot up more than 11pc. 

Its developments under construction are forecast to bring in £27m of new rent, underpinned by a largely de-risked development programme, with 61pc already been pre-let before completion. The company added that there was £302m of investment in its profitable development pipeline.

Segro has a large land bank around the M25, making it an attractive option for investors. Its share price has outperformed its sector, and was up 3.5pc in early trading.

Mr Sleath added: "Unlike the other commercial property sectors that are more nervous about Brexit, in terms of warehousing they see it as one of the go-to sectors. The tailwinds are encouraging and we are trying to take advantage of that."

Its final dividend was up 5.7 pc to 11.2p per share. Analysts at Morgan Stanley said: "Owners of well-located logistics and industrial property such as Segro should see further improvement in pricing power thanks to demand from retailers and third party logistics. This should drive the start of a continental rental recovery and further UK rental growth despite Brexit uncertainty."

Mr Sleath added that one problem on the horizon was that of land, which is being snapped up by residential developers in urban areas. "On a long-run basis it's a worrying trend that needs greater thought," he said. 

READ MORE ABOUT: