UK-based Industrials Reit, which owns multi-let industrial (MLI) assets providing workspaces for small and medium-sized businesses, says demand for space has resulted in rising market rentals across its portfolio.
For the six months to end-September, average market rentals increased by 29% on new leases and renewals, the highest growth rate achieved to date.
This is the eighth successive quarter of more than 20% rental uplift, enabling the company to deliver on its target annual rental growth of 4%-5%, with average lease length of about 4.5 years.
“Strong occupier demand has continued to drive substantial rental uplifts across our UK MLI portfolio during the reporting period,” said CEO Paul Arenson.
Arenson said the portfolio’s affordable assets continue to attract a diverse range of businesses and now comprise more than 1,500 separate occupiers.
Arenson said 64 new leases and 133 lease renewals across 690,930 square feet and generating £4.7m of new rental income were concluded with bigger units let in the past six months.
Like-for-like annual market rents were up 4% when adjusted for the largest rent-free period, in Ashby-de-la-Zouch, which expired in November 2022.
Rent collection rates are returning to normalised levels of about 98%. “With rent typically accounting for 1%-3% of customer turnover, we believe that rents remain affordable and rental growth can sustainably be absorbed by our customers,” said Arenson.
The London and Johannesburg-listed real estate investment trust (Reit), gives SA investors an opportunity to invest in UK-listed property.
MD Julian Carey told Business Day that growth in e-commerce is a huge driver for MLI units and industrial space in the UK. As a result, limited supply is boosting rentals, Carey said, adding that for the past five years the industrial market has recorded 6% rental growth.
“With rising interest rates and high inflationary environment, growth in the industrial property sector is expected to be in single digits,” said Carey.
He said the average MLI unit within the portfolio is about 4,000 square feet with big units measuring up to 75,000 square feet. In the past 18 months, Industrials Reit has been successful in letting its bigger units.
“Occupation remains strong and exceeding our expectations, and even though we are faced with economic challenges, the business has a strong balance sheet and is poised for further growth.”
At September 30, and including its share of joint ventures, Industrials Reit’s investment properties were valued at £656.5m, a 4.5% decrease since March on a like-for-like basis, excluding the effects of additions and disposals during the period.
Arenson said despite rising interest rates, high inflationary environment, and economic and political uncertainty, the industrial occupier market has remained resilient.
However, the investment market has come under pressure with yields beginning to move out. Investment valuation yields are expected to continue to rise, resulting in further reductions in valuations.
“We took an active decision to pause investment activity and, over the reporting period, we acquired only £9m of MLI assets, lower than our previous target of £25m per quarter on average.”
Group borrowings reached £196.9m with loan-to-value increasing slightly from 25.6% in March to 26.1% due to valuation decrease offset marginally by a small increase in unrestricted cash to £23m from £20.7m in March.
Industrials Reit declared a 3.5p per share dividend for the six-month period.
Update: December 4 2022
This article has been updated with additional information.
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