LONDON (ShareCast) - Industrial and warehouse property owner Segro said it had enjoyed a continued improvement in both occupational and investment market conditions in the first quarter, with yields compressing, and had decided to accelerate its development programme to take advantage of conditions.

The FTSE group said vacancy rose to 9% due to an expected skewing to the first half of the year, reflecting larger take-backs in France and Germany, although pre-lets and growing occupier demand were driving "material acceleration" of its development programme, it said.

The vacancy rate is expected to have fallen from the current level by the end of the year.

Chief Executive David Sleath, said: "We have had a busy and productive first quarter, making further progress against our strategic objectives whilst also seeing a continued improvement in both occupational and investment market conditions.

"Occupier demand for new space continues to improve in most markets and this has been reflected in increased rental commitments, particularly for pre-let developments, compared with the first quarter of 2013.

"We have taken advantage of the stronger market conditions to accelerate our development programme, adding more than 50% to both the number of projects and space to be built since the start of the year."

Contracted rental income was significantly ahead of last year, with £9.0m of rental income during the first quarter, up 91% from the same period in 2013, with a notable letting of its Logistics Property Partnership joint venture asset in Sheffield, previously one of the group's largest voids.

Within the £9.0m of contracted rental income, Segro signed new pre-lets of £5.4m, including a 22,000 square metre (sq m) distribution warehouse for a major international retailer at Rugby and a 10,400sq m data centre on the Slough Trading Estate.

The group has also committed to new speculative development in high-demand locations, including 14,650 sq m of light industrial and warehouse space at Park Royal in London, as well as 6,600 sq m of office space on the Slough Trading Estate.

The strong lettings and pre-lets were partially offset by £4.7m of take-backs, equating to 111,000 sq m of which 62,700 sq m were in France.

Sleath added that investor demand for prime assets continued to strengthen, translating to further yield compression. He said expectations for the full year were unchanged.

The recent IPD Monthly Index pointed to 3.2% capital growth in UK industrial property for the first quarter and Segro noted transactional evidence had been pointing towards improving values for prime assets in Continental Europe.

Shares in Segro were up 0.65% to 354.8p at 09:10 on Tuesday.

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