LONDON (ShareCast) - Industrial property investor Segro has made an encouraging start to 2015 as UK market conditions improve but warned that competition had intensified in Continental Europe.
From the start of the year to 27 April, the FTSE 250 company enjoyed a fourth consecutive quarter of positive stock absorption at £0.7m, with £4.1m of lettings balanced by £3.4m of take-backs.

Including big box logistics agreements with Volkswagen and Zabka in Poland, and 6,600 square metres of new warehouse space on the Slough Trading Estate, Segro completed 71,700 sq m of developments in the first quarter. These properties currently generate an annualised rent of £2.1m, with the possibility to take this up to £2.9m.

There was 241,500 square metres of space was under development, of which 36% has been pre-let and, with a potential future annualised rent of £18.6m, this gives a blended 8.6% yield on cost.

Chief executive David Sleath said: "We have made a good start to 2015. Our operational performance has been in line with our expectations at the time of our full year results announcement, with net absorption of existing space, a continued low vacancy rate and improving UK rental levels.

"The development programme is progressing well and we expect to add further projects to the active pipeline during the remainder of the year."

He added that occupational market conditions continued to improve in the UK and were better in Continental Europe than they were this time last year, while UK investor demand for good industrial and logistics assets remained strong but that, increasingly, competition for such assets in Europe was "noticeably intensified".

Of the £103m of acquisitions in the period, £77m was of land focused around Greater London, the Thames Valley and Cologne where management believes that supply is limited and demand is growing.

Broker Numis said that while rents are improving in the UK, especially inLondon and South East England, the process of translating estimated rental values growth into like-for-like net rental income growth "is opaque" and analysts had therefore modelled a LFL increase of £2.8m, or circa 1.3%, through the full year.

"The key driver of earnings growth (3% CAGR) is developments."

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