"Pent-up demand" will release over time to increase occupational take-up in the UK industrial market, according to Tritax CEO Colin Godfrey, who said the business was in"really, really good shape" despite reduced transaction volumes across the sector as a whole in the first half of 2023.
Filing half-year results for the six months ended 30 June 2023, Tritax recorded 10 million square feet of lettings, which was down on the previous year but still in line with the 12.8 million-square-foot pre-pandemic average.
The group, which had 10.4 million square feet under offer at the period end, also reported an increase in vacancy, which increased to 3.4% from 2% at 31 December 2022. Godfrey said its results were reflective of the wider economic conditions faced by occupiers, predicting that activity would pick up in tandem with improving macroeconomic conditions.
"[Lettings] are down on where it was the year before, but as a consequence of the higher level of speculative development, we've seen an increase in vacancy. I don't think it's going to run away with itself because we've seen a month-by-month reduction in speculative starts over the course of the few months.
"I think what this talks to is a pent-up demand growing, occupiers are taking longer to make decisions and the C-Suite need a bit more confidence but, once that starts coming through, you will see this pent-up demand starting to release, which will take up the excess of speculative activity we have seen coming through, and that will give rise to another push on rental growth in 2024."
Tritax recorded a 3.1% increase in passing rent, which rose to £211.6 million, up from £205.1 million at December 2022. It largely put this down to new development completions which added £10.5 million. A further 2.6 million square feet under construction, of which 65% is prelet or has been let during construction, will add £12.6 million in passing rent.
The REIT also reported that it was "aiming to refinance the group's £450 million revolving credit facility", which matures in December 2024. "Positive discussions with our lenders are ongoing and we expect to conclude this during the second half," the report added.
One of the most positive features of its half-year results was the stabilising of its portfolio value, which decreased minimally to £5.05 billion from £5.06 billion six months ago, equating to an equivalent yield of 5.3%.
The group said its portfolio valuation was supported by its own investment disposals "at or above book valuation levels", raising £235 million in the first half of the year. Headline sales included two newly developed and vacant multilet assets at Littlebrook in Dartford for £25 million, in addition to three investment assets at Skelmersdale, Knowsley and Worksop for £126 million.
Those three deals reflected a blended net initial yield of 4.6%. Tritax also exchanged on a £84.3 million building at Warth Park Way let to Howdens, reflecting a net yield of 4%. It is aiming to dispose of £100 million to £200 million during the second half of the year, with the proceeds being recycled into higher returning opportunities.
Godfrey said the group were looking at disposals on an asset-by-asset basis, typically non-core assets. "Generally speaking, we have a fantastic quality portfolio. It's not as though we are sitting on assets which we would really rather not.
"We are trimming those that we think are going to be performing a little less favourably in the future and we are using that capital to bolster our balance sheet, giving us more flexibility and optionality moving forward to allow us to invest into our development activities."
One of its most significant purchases was that of Junction 6 Logistics Park, a major urban logistics park in Birmingham, which it bought post-period-end for £58 million, reflecting a 4.6% net yield. Tritax said the purchase provides "attractive opportunities to grow income in the near term reflected in 6.7% reversionary yield."
Commenting on that deal, Godfrey said: "I think that was a great purchase, it has more delivery points in terms of the ability for us to move our income forwards with more lease expiries and more rent reviews.
"The reversionary yield on that deal, for example is really attractive and probably higher than some of the assets that we would otherwise be selling. So, I think it ticks lots of boxes, and where we can acquire that type of investment moving forward in the urban space we will."
Tritax also demonstrated a strong balance sheet, with its loan-to-value ratio at 30.3%. It also said it has in excess of £550 million of available liquidity, and "significant headroom within our covenant levels providing capacity to withstand any further volatility in portfolio valuation."