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Warehouse Rents Rising As Post-Pandemic Reality Bites

LondonMetric's site at Campbell Road, Stoke on Trent, now let to Pets at Home

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.

A trading update from Segro and annual results from LondonMetric paint a picture of rental uplift and relatively low levels of rental default.

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 No customer has withdrawn from any contracted pre-let discussions, and new opportunities have emerged over recent weeks, the trading update said.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.