Building warehouses is getting expensive, says Segro
By Matt Hall | 22nd April 2022
Logistics hubs are getting more expensive and difficult to build, one of the world's biggest owners of warehouses has warned.
Segro, owner of a £21 billion worldwide commercial property portfolio, said that costs of labour and materials involved in building new facilities had risen drastically in the last year.
The group said it expects these higher build costs would be passed onto tenants and occupiers, placing further upward pressure on rents.
Segro's vacancy rates dropped to 3.3 per cent at the end of March 2022, from 4.4 per cent the year previous - emphasising the supply-demand imbalance for industrial assets.
A trading update revealed plans to spend £700 million this year on building warehouses and refurbishing existing ones. Segro said it expected this to cost more, but that higher costs would deter others from building as many warehouses as they were.
David Sleath, chief executive of Segro, said: "Our business has had a strong start to the year with continued demand from a broad range of customers enabling us to capture further rental growth through rent reviews and the re-letting of space.
"We have significantly increased our largely pre-let development pipeline and have secured future opportunities for growth in some of our most supply-constrained urban markets through the acquisition of land, as well as income-producing assets with medium-term redevelopment potential.
"There have been no direct effects of the invasion on our business, however it has added to construction supply chain and inflationary pressures and we are working closely with our construction partners so as to minimise the impact on our development programme.
"At the same time, we expect these pressures will further tighten the supply-demand imbalance for industrial assets and place further upward pressure on rents across our portfolio.
"We are alert to ongoing geopolitical and macro-economic risks but remain confident in the outlook for our business in 2022 and beyond."
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