Warehouse Rents Rising As Post-Pandemic Reality Bites
Anecdote is no substitute for hard statistical proof. And evidence is mounting that the UK logistics property sector is about to deliver a rise in returns as post-pandemic rents surge.
Segro’s figures showed that new headline rents on UK review and renewal so far in 2020 are up approximately 15.5% on previous passing rents. No customer has withdrawn from any contracted pre-let discussions, and new opportunities have emerged over recent weeks, the trading update said.
The company raised £650M of new equity from shareholders to build out its development pipeline and make new acquisitions.
LondonMetric revealed like-for-like income growth of 3.8%, excluding the effect of the £455M Mucklow acquisition. Deals agreed since the lockdown include Network Rail taking a new lease on 38K SF in Birmingham at a rent of £7.50/SF, an uplift of 28% on previous passing rent, and Pets at Home signing for a site at Campbell Road, Stoke-on-Trent, taking 141K SF at a rent of £6/SF, compared to the £5.60/SF rent agreed on the neighbouring unit.
The same pattern is visible in other regions. At Greenford, west London, Metabolic Healthcare is taking a new lease of 34K SF paying £12.80/SF. The warehouse was recently refurbished and the new rent is 82% above the rent paid on acquisition of the unit in 2018.
At Fareham, LondonMetric has regeared a lease on a 50K SF warehouse extending the lease by 10 years. A rent review as part of the process increased the rent by 22% to £7.95/SF.
Both Segro and LondonMetric's announcements also confirmed that warehouse landlords are not suffering in the same way as their office, retail and leisure counterparts. LondonMetric said that 93% of rent due had been paid, with just 1% of rent forgiven.
Segro said that at 31 May, 83% of rent billed for Q2 2020 had been collected or is expected to be paid shortly. This is up from the 75% of Q2 rents received by early April. For comparison, Q2 2019 saw 96% of rents paid on time.
Segro said that around £15M of rent, representing around 16% of what was due in Q2 2020, has been deferred or is being re-profiled, the majority of which is due to be paid during this financial year or in 2021.
Around £2M of Segro rent remains unpaid and is not currently subject to deferment negotiations. None of these customers has requested to return their space.