Serviced offices provider SEGRO has delivered its half-year results, showing a 56.6 per cent fall in profit
, balanced by reducing empty property costs and securing £20.2m of new lettings income. Regional declines in its portfolio, particularly in Manchester and Birmingham, were counteracted by strong performances from its serviced offices in those same areas; Kings Norton Business Centre, Birmingham and Westbrook Park, Manchester are two of note.
SEGRO develops and invests in property in the UK, Europe and the USA. Its development strategy is often to target edge-of-town areas for serviced offices development. Originally founded in 1926, as the Slough Trading Company Ltd, rapid expansion followed in the 1980s. In 2007 conversion to real estate investment trust status occurred, alongside the name change to SEGRO. The Slough Trading Estate, its original investment, is the largest trading estate in Europe under single ownership. It is also the location where Ricky Gervais’ TV series The Office was filmed.
SEGRO’s results may not have left investors dancing around in the style of David Brent, but news that the group vacancy rate across the serviced offices portfolio is down to 11.4 per cent has been met with approval. This continues a downward trend, from 12 per cent on 31 December 2010 and 14 per cent in June 2010.
Once signed up, occupiers appear to be staying longer in their serviced offices, and paying more rent at the same time. Customer retention rate improved from 58 per cent to 74 per cent and like-for-like rental income was up 5.1 per cent.
Further expansion of SEGRO developments is evident. Twenty-nine developments have been completed, are under construction or have been contracted. These represent a £205m approximate expenditure with a potential annual rental income of approximately £24m. There is also talk of a ‘£395 million well located land bank with the potential to generate estimated annualised rental income of £110 million on capital expenditure of £900 million’.
SEGRO’s National Markets portfolio comprises UK assets mainly held in and around Manchester, Birmingham, Bristol, Basingstoke,Portsmouth and Crawley. These form 18 per cent of the total UK portfolio value. In the Midlands and the North, occupier market conditions were found to be ‘the most challenging’. There is said to be ‘limited interest’ in the larger serviced offices offerings, although ‘a significant number of smaller lettings’ were reported to be completed. A 4.1 per cent reduction in valuation of estates in the Midlands and the North is attributed to ‘the weaker occupier and investor demand in those areas’.
The Thames Valley portfolio primarily comprises serviced offices in Slough, IQ Winnersh and IQ Hampshire business parks. Slough ‘continues to perform well’ and, due to ‘continued occupier demand and shortage of available product’, SEGRO states its intention to restart ‘focused speculative development on the Estate with three projects approved’.
What of the future? Operational delivery appears to be a key component. Evaluating and re-shaping the portfolio by ‘selling peripheral or non-core assets’ is another. David Sheath, Chief Executive of SEGRO says: ‘We remain mindful of the broader economic and financial risks currently affecting markets and continue to take a prudent approach to managing the business.’
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