Segro doubles real estate development budget thanks to e-commerce power

By Esha Vaish

(Reuters) – Segro Plc, Britain’s largest listed industrial property developer, expects to almost double its development budget this year as the shift towards retail in Europe boosts demand for logistics warehouses, the company’s chief executive said.

Segro plans to spend up to 300 million pounds ($429 million) on property development this year, up from the 164.4 million pounds it spent in 2015 to develop 19 projects, CEO David Sleath told Reuters.

“The growth of online retail sales is forcing retailers and their delivery partners to fundamentally overhaul their supply chains,” Sleath said.

“This means we have a great opportunity to go even further and faster in our development.”

Delivery companies continually need more warehouse space as they expand their door-to-door services to meet the growing number of people going online to buy everything from clothes to air conditioners.

Miles Gibson, head of UK research at consultancy CBRE, expects the total return on industrial property this year to be higher than all other commercial properties.

Segro, which operates mainly in the UK, France, Germany and Poland, competes with Prologis Inc, Goodman, Brookfield’s Gazeley and a number of smaller companies.

Sleath said Segro could easily spend around £800-£900 million on building new warehouses and industrial facilities over the next five years.

Current and potential developments over that period could deliver annual rental income of around £109 million, or around 38 per cent of the current income stream, Segro said in a statement on Friday.

Segro spent the better part of a century repurposing industrial sites. Four years ago, it embarked on a major overhaul that led to it exiting several European markets and refocusing on serving online retailers.

The value of the company’s property portfolio was £5.7 billion as at December 31, up from £4.8 billion a year earlier.

Segro also does not plan to build industrial warehouses, but wants to allocate part of the land for new houses.

Thanks largely to strong rent growth in the UK, Segro on Friday reported a 21% increase in EPRA net asset value – a key indicator for developers reflecting the value of buildings.

The EPRA net asset value is calculated in accordance with the guidelines of the European Public Real Estate Association.

Segro’s move toward e-commerce and a recovery in demand should help it achieve above-sector average NAV growth, Investec analyst Alison Watson wrote in a client note.

($1 = 0.70 pounds)

(Reporting by Esha Vaish in Bengaluru; Editing by Savio D’Souza)