Busy pipeline at SEGRO

Segro today reported more progress despite a “challenging” macroeconomic backdrop. In a statement to the London Stock Exchange Segro said it had generated new annualised rental income of £5.5m from the take-up of developments completed during the period from 1 July to 24 October, plus a further £2.6m generated from net absorption of existing space.

The group’s vacancy rate dipped to 9.0%, from 9.1% at the end of June, and it has signed three new pre-let development contracts that it says will produce £1.8m of rental income when delivered in 2013. Since the start of July, Segro has completed 10 developments, of which 71% are already let. This includes a 9,900 sq m facility at Heathrow for DB Schenker at the APP Portal site on a 15-year lease and, on the Slough Trading Estate, a 5,600 sq m pre-let datacentre and 3,100 sq m speculative scheme.

Three new pre-let developments were signed during the period, including a 6,500 sq m pre-let industrial property in North Feltham for a freight-forwarder, due to complete in Q4 2013. Segro has also approved a 1,500 sq m speculative development adjacent to this site. In addition, it has approved a 14,500 sq m speculative Park Royal industrial property at the Origin site.

In total, Segro has 15 developments contracted or under construction, representing £14.8m of future annualised rental income and £85.3m of future capital expenditure. Its development pipeline is 78% pre-let overall.

“We have continued to see reasonable enquiries for new and existing space in most of our core markets,” Segro noted, but pointed out that many of its customers were still taking longer than normal to commit, meaning that the amount of new rent contracted during the period was similar to that seen in the first two quarters of this year.

Segro said overall rental levels had generally been stable, with average headline rents remaining above the December 2011 valuers’ ERVs and with rent-free incentives remaining under 10% of headline rents.

The group said investment-market appetite remained strong for high-quality industrial assets in the strongest locations in the UK, France, Germany and Poland, and that the values of such assets appeared to have held up well. “However, demand for secondary assets in less attractive locations continues to be more limited,” it cautioned.