While retail landlords, the likes of Land Securities and Hammerson, have struggled to collect their rents since the outbreak of the pandemic earlier this year, and the collapse in property values and their market capitalisations has been dramatic; logistics is in an entirely different position.
The outlook for retail and leisure was bad enough before the pandemic which brought the British economy to its knees. Over 6,000 stores closed last year. During lockdown and since, with the enforced shutdown of cafes, pubs, restaurants, gyms and hotels is expected to result in thousands more pulling down the shutters for good.
Industrial and logistics landlords, on the other hand, have easily outperformed these other sectors within the commercial property market due to the acceleration in e-commerce. With the likes of with heavyweight LondonMetric its not surprising there’s a big difference. This is, a property development company specialising in industrial and logistics, and with a market capitalisation of around £2bn, it’s reporting a fourth-quarter rent collection rate of 94 per cent.
Not far behind is another big (£11bn) industrial and logistics landlord developer Segro with a UK rent collection rate at 85 per cent of UK rent, ahead of the equivalent date after the second and third-quarter payment deadlines. Its Continental European rents, which are paid monthly, are also tracking ahead of previous quarters. Total rent collection for the second and third quarters stands at 96 and 95 per cent, respectively.
The company is on course to improve further during the fourth quarter, as it continued to deploy £680m in funds raised for expansion in June. The FTSE 100 listed REIT placed 82million shares, representing 7.5% of its issued ordinary share capital, to accelerate pre-let developments as well as acquisitions of land and investment assets, and it is eyeing £1bn worth of deals over the next year and a half.
The group also completed the purchase of Electra Business Park in east London from Schroders the investment fund and invested a further £29m in its own land bank, in line with its target to invest more than £800m in its development pipeline this year.
Increasing rent premiums that can be demanded by logistics properties currently on the market mean the group can invest with confidence, knowing that it can generate higher returns by developing its own assets, even though speculative development comes with more risk.
The company is flying high, but it has not come out entirely unscathed through Covid-19, with rent roll growth from existing space standing at £7.9m, net of space handed back, behind the £10.6m it achieved at the same time last year.
However, investors in the company should take comfort from the fact that the rate at which new headline rents have been agreed on review and renewal, so for this year, have been 10 per cent higher than previous passing rents.
Shares in Segro are trading at or near all time highs, given the prospect of continued rental income and therefore dividend growth.