ANALYSIS: Are warehousing investments becoming overvalued?

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That’s the question asked by some logistics Reit investors as rising demand for warehouse space over the past year has led to rising rents – and valuations.

Rising demand for home deliveries especially during the pandemic – a trend that had been building long before Covid hit – means that the demand for warehousing space has been rapidly increasing.

Logistics assets consequently are reaching new highs in value thanks to consistently growing rents and a recent Investors Chronicle (IC) article asks, has this now gone too far?

Shares in warehouse owners, property company landlords who have benefited from these structural changes in the market, have reacted positively from the market sentiment, so much so that some are now looking overvalued.

As always happens when an investment trend is clearly identified, investor demand increases, and over the past 12 months some of these investments now trade at premiums to their net asset values (NAV).

Real estate investors have been clamouring for more exposure to the logistics sector as retail and leisure has seen a rapid decline. Those investors seeking to capitalise on the rapid growth in ecommerce and a renewed drive by companies seeking to strengthen their UK based supply chains post-pandemic, and Brexit, are willing to pay higher prices for these assets.

New money is also being ploughed into new logistics sites and distribution centres and investment companies and property Reits see a long-term future in the sector.

Record year

According to the Real Estate Services Group, warehouse development is heading for a record year in 2021. The amount of new space under construction is more than double the amount completed in 2020, with most of that space pre-let to retailers and distribution companies.

Johnny Hawkins, UK capital markets partner at Knight Frank told the IC: “There’s a wall of capital trying to get in and there’s not that many that really want to sell. Investors have been attracted to secure income streams as demand for ecommerce has accelerated demand for warehouse distribution sites,” he said.

Clearly, investors are expecting asset values in this sector to go on increasing. Property specialist Reits such as Segro (SGRO) and LondonMetric (LMP) are now trading at premiums to both the last reported and forecast net asset values (NAVs).

Chief executive at Urban Logistics (SHED), Richard Moffitt, said the demand for the faster delivery of products has led to more companies widening their “distribution footprint”. “Everyone gets excited about Amazon, but the reality is what you see now is a structural shift in the way we now procure our goods,” he told the IC.

Real clamour

Moffit says the Reit has experienced “a real clamour” among tenants to extend leases over the past six months, as these companies seek to make their supply chains more sophisticated following the pandemic and uncertainty of Brexit. “They can see that if rents are going to be on the rise, they may as well lock in now to a longer lease.”

Increasing competition for this type of space is really benefiting landlords as it means that tenants are anxious to secure leases and are willing to settle rent reviews in advance of the due dates. Around 80 per cent of rent reviews have been settled in advance of the lease date, Mr Moffit says. “Sometimes a tenant can see that the evidence is getting stronger and they’re not going to move anywhere.”

In March 2021 prime distribution space was the only property type where asset values were rising, driving down investment yields to below where they were a year earlier, that’s according to Knight Frank data. The average prime logistics investment yields are new below those available on prime offices in the City of London.

As the structural decline in retail rents continues to accelerate, and the future demand for office space post-pandemic is still unclear, it becomes harder to find reliable sources of rental income beyond logistics. There is good reason to be bullish on the sector but there is also the danger that values get ahead of themselves.

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EXCLUSIVE: Landlords and agents reject MP’s furlough discrimination claims

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Landlords and letting agents groups have insisted their members shouldn’t be – and aren’t – discriminating against furloughed would-be tenants.

They have responded to a written question asked by Labour MP Paul Blomfield (pictured) about what assessment Housing Minister Christopher Pincher had made of the extent of landlords and private letting agents refusing prospective tenants in receipt of support from the Coronavirus Job Retention Scheme.

Pincher replied that his department didn’t hold this information but said there was no reason landlords or letting agents should be refusing tenants outright on the basis of being furloughed.

He added: “A letting agent is free to carry out any referencing checks within the law as they deem appropriate before accepting a new tenant. This may include income requirements or the need for a guarantor, depending on the decision of the individual landlord.”

No evidence

Propertymark insists it has not seen agents refusing prospective tenants on these grounds. Mark Hayward, its chief policy adviser, tells LandlordZONE: “References look into the affordability of the proposed tenant and then the agent will react to the contents of that reference; however, we’re not seeing any evidence at the moment that those tenants on furlough have been prejudiced against.”

Case by case

A spokesman for the National Residential Landlords Association adds: “Landlords and letting agents should not have blanket bans on specific groups of people being able to rent their properties.

“Each tenant should be considered on a case-by-case basis, with appropriate checks to ensure they can afford the rent. Where needed, making use of guarantors can be helpful in providing confidence to both the landlord and the tenant.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – EXCLUSIVE: Landlords and agents reject MP’s furlough discrimination claims | LandlordZONE.

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How to triple your rental profit with HMOs

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Tuesday 20th April

Join Simon Zutshi, founder of property investors network and Author of Amazon No 1 property best seller “Property Magic”, on this 90-minute live training all about how you can increase your cash flow.

If you don’t have any HMOs yet you must attend this free training.

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Licence Fees – Should I only pay an inflation linked increase?

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Hi Everyone, I am an HMO landlord for many years in Leicester. The local Authority who does a very good job and is very helpful in my opinion has increased the HMO fees for a licence from £650 in 2016 to £900 currently.

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Eviction figures from Generation Rent are ‘irresponsible’, says expert

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Tenants’ advocacy group Generation Rent has published figures that claim some 700,000 renters have been served with Section 21 notices during the pandemic.

This figure is extrapolated from a survey of some 1,000 tenants, of which one in 12 said they had been served a Section 21 notice during the pandemic.

Section 21 notices are used by landlords seeking to move back into a property or sell it, but also as the quickest way to evict tenants who have stopped paying their rent.

Generation Rent says that its poll, if applied to the UK rental market of some nine million people, would mean 700,000 people served such notices.

Its Director, Alicia Kennedy, says: “Renters have been waiting two years for the government to make good on its promise to ban these unfair [Section 21] evictions.”

Huge figure

But Paul Shamplina of Landlord Action says that, although such a huge figure looks good in headlines, it is very unlikely to be accurate.

Approximately 21,000 people according to official MoJ figures are evicted during normal years via Section 21 and Section 8 notices combined, so for this to increase to 700,000 over the past 12 months is highly unlikely even considering Covid related circumstances, says Shamplina.

“If this was true, then it would take years for the courts to clear such a huge backlog, during which tenants would not be evicted, rent arrears would back-up and many landlords would suffer financial meltdowns.

“It is irresponsible of campaigning organisations to bandy these type of figures around because it doesn’t help the debate about rent arrears and reform of the court system move forward.

“A more considered and evidence based study of the situation was outlined in the report “Beyond Section 21” which outlined the true picture and presented constructive analysis and suggestions on how to proceed.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Eviction figures from Generation Rent are ‘irresponsible’, says expert | LandlordZONE.

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Benefit tenants, I am sorry!

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Benefit tenants, I’m sorry, I now have to refuse & discriminate against you if you have Mental Health problems too. And urge all other Landlords to do so too.

A strong statement here, I cannot and urge you all to not take Mental Health Benefit tenants.

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Manchester Mayor vows to launch £1.5m landlord licensing across city

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Andy Burnham has vowed to come down hard on rogue landlords if he secures a second term as Greater Manchester’s mayor.

His manifesto promises to introduce a £1.5m Greater Manchester Good Landlord Charter in partnership with the city’s 10 councils to support landlord licensing and drive up standards in the private rented sector.

“We need to make it much easier for tenants to find out whether landlords are prepared to sign up to the basic standards required by the charter,” says Burnham.

“As part of this, we will support our 10 districts to develop landlord licensing schemes and ask Greater Manchester Fire and Rescue Service to support with enforcement of safety standards.”

Selective licensing

Manchester Council has just finished a public consultation on its plans to introduce a widescale selective licensing scheme.

Nearly 1,800 properties are already covered under selective licensing schemes in Crumpsall, Moss Side, Moston and Old Moat; there are now plans for three new schemes covering 1,402 properties in parts of Clayton and Openshaw, Harpurhey, Gorton and Abbey Hey.

In March, the Greater Manchester Combined Authority – made up of the 10 councils and Burnham – launched proposals for a Good Landlord Scheme, funded by the £1.5m surpluses generated by the GM Housing Investment Loan Fund (HILF).

It proposes ensuring tenants and landlords have access to accurate and up-to-date information and advice as well as “strengthened and focused enforcement capacity”.

It says: “While enforcement powers lie at district level, there are clearly resource constraints on teams locally which GM HILF surpluses could help to redress. This enables us to directly support work to target the poorest quality and worst managed properties in the sector.”

Burnham’s other manifesto pledges include bringing more properties in the private sector under social housing standards by expanding the new Ethical Lettings Agency ‘Let Us’ and working with councils and housing partners to develop plans to build 30,000 zero-carbon homes for social rent.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Manchester Mayor vows to launch £1.5m landlord licensing across city | LandlordZONE.

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