Segro’s largest ever development plan struggling to meet demand

INCREASING demand among retailers to offer shorter delivery times is putting pressure on the amount of warehousing space available in the UK, the chief executive of Segro has said.

David Sleath said the company was benefiting from “supply/demand tension” in both British and southern European markets as internet shop- ping boomed.

He said the company had accelerated its development pipeline in order to try to meet demand, and had already let two thirds of the planned buildings ahead of their completion. “Our development programme is the largest we’ve had in our history,” he said.

On Monday, Tesco became the first retailer to offer same day grocery delivery across the UK, ahead of a planned challenge from Amazon.

The grocer launched the service in London and the South East three years ago, but is now rolling it out to 300 stores, meaning 99pc of UK households will be able to access the service. “The battleground for internet retailing is same day delivery,” Mr Sleath said. “And you can only do that if you have the technology and the warehouse that enables you to meet those promises.” He said that trading in southern European countries, such as Spain and Italy, was also strengthening as the internet retailing market matured, adding that he was “encouraged by the continued leasing momentum across our portfolio”.

The firm completed a £557m rights issue in March, which has “created significant capacity for growth,” it said, and will enable it to build more properties. Segro expects to spend “in excess of £350m” on development this year, £50m more than it had initially forecast, which analysts suggested reflects management’s confidence in the market dynamics.

Segro yesterday reported a 23pc rise in adjusted profits in the six months to June, while its net asset value, the preferred measure of most property companies, was up 5.4pc to 504p a share.

As well as benefiting from higher rents and new developments, Segro’s profits were bolstered by the acquisition of a large portfolio of properties near some of the UK’S largest airports.

In total, the group owns around £5bn of warehouse properties in the UK, mostly around London and the Thames Valley, and continental Europe.

David Brockton, analyst at Liberum, said: “Industrial remains one of the better performing real estate sectors as evidenced in Segro’s first-half results.”

The company was promoted to the FTSE 100 in May, having last dropped out of the top index in September 2010.

Shares in the company closed up 14.5p, or 2.9pc, at 519.5p yesterday.