Sirius unlocks value from vacant space capex spend
Sirius, the owner and operator of branded business and industrial parks in Germany and the UK, says acquiring vacant buildings presents opportunities to improve rental income across its portfolio.
The company said a previous investment of €73.8m into vacant space yielded €27.6m, representing a 37% return on investment. Planned investment into vacant space for the 2024 financial year is €3.3m, with a targeted rental return on investment of about 35%.
CEO Andrew Coombs told Business Day that the company has 270,000m² in vacancies, and about two-thirds of that space is opportunistic. When the company buys vacant buildings, a portion of that is turned into new spaces such as storage while the rest is enhanced to increase rentals.
“When most property companies buy new assets, they look at the quality of occupancies — we want to understand the income because we know we can get higher returns by investing into assets,” said Coombs. Investing in assets also helps to drive up rentals.
In an interview with Business Day in August, Coombs said turning vacant and underutilised space into income-generating assets to increase occupancies and rental rates achieved per lettable square metre was a key driver of organic growth.
He said that for the next two to three years, Sirius will focus on refurbishing about 90,000m² of vacant space into self-storage boxes and special workshops in Germany to extract value and drive rental growth.
The London and JSE-listed property group consistently delivers a stable and attractive return for investors.
Due to high demand for space in Germany and the UK, the company can raise rentals with little tenant resistance. Coombs said in the six months ended September, the like-forlike rent roll rose 9% in the UK to £50.7m from September 2022.
Since acquiring the BizSpace business in November 2021, Sirius focused on driving rental rates to 21% while maintaining occupancies of nearly 90%.
“Increases in rent are mainly driven by pricing and high occupancies.”
Commenting on the 21% rent increase, Coombs said the portfolio is 3% less occupied than when the business was acquired, and 2% better occupied than it was a year ago.
BizSpace comprises 70 warehouse-workspace office, storage, office buildings and mixed-use assets on the outskirts of major cities which are home to 3,494 tenants.
From October 2022 to September 2023, the platform recorded 1,379 inquiries for space, 361 viewings and 100 sales. The conversion rate from inquiries is 26.2% with inquiries to sales sitting at 7.3%.
The portfolio, which has low tenant risk, has structural shortage of space and high demand for flexible and out-of-town logistics facilities. Vacancy rates for light industrial and logistics assets in the UK are 2.7%.
“We see strong rental growth potential within our portfolio — hence we will continue to invest into the portfolio in localities including Doncaster and Nottingham as well as dispose of noncore assets,” he said.
The Germany portfolio has 69 properties, including traditional and modern mixed-use industrial business parks and out-of-town office buildings. It has 5,754 tenants and 8.1% of total rent roll comes from government tenants.
Properties in Frankfurt, Düsseldorf and Stuttgart contribute the highest revenue of 23%, 18% and 15% respectively.
Coombs said organic growth is achieved through active asset management, recycling capital into new acquisitions and the capex programme. Like-for-like rent roll rose 7% to €122.5m with occupancies of nearly 84%.
During April to September, inquiries reached 1,317, with 800 viewings and 162 sales. Inquiries converted to viewings were 60.7%, with inquiries to sales recording 12.3%. company “With ’high s properties demand in both for the the UK and Germany, the pipeline has potential to drive attractive returns for the next cycle,” said Coombs.