Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

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October 25, 2022

A round-up of market statements, news, economics and views from the property and construction sectors

SHED, MGNS | Cost inflation and Private housebuilder updates 

Company news

Urban Logistics REIT (SHED, 125p, £592m)

Specialist UK  ‘last mile’ logistics real estate investment trust. Guidance: “We see the potential for continued capital market turbulence, but are reassured by the continuing demand in the occupational market. We remain well placed with our largely fixed debt cost, low LTV, and immediately available debt facilities at an attractive cost, to acquire assets when the time is right. Our strategy will continue to be based on value creation through active asset management, leaving us well-positioned in a volatile market”. Trading: 12 new lettings in the period generated £4.0m of additional rental income; nine rent reviews or re-gears in the period, generated an additional £0.6m. LFL 59% rental uplift across all 21 lease events for the period. 40% of the portfolio with an EPC rating of A or B, and 86% with an EPC rating A-C, up from 27% A or B and 76% A-C in March. Occupancy rate, 95% at period end, with five further leases either let post period end or in solicitors’ hands. Recent deployment of a further £3.3m of capital, bringing the total in the period to £112m, at a blended net initial yield of 4.8%. HY results, 11 November.

In other news …

Cost inflation. Knowsley Council has halted Morgan Sindall’s (MGNS) planned cinema complex job in Kirkby town centre in Merseyside blaming rocketing cost and ongoing national economic uncertainty, (link). Morgan Sindall was named as preferred contractor for the project at the start of the year. However, the current national market conditions have resulted in the overall costs to deliver the scheme jumping by up to £5m – almost double the original cost – and still with considerable uncertainties. Council chiefs said they had planned to borrow some of the funds to pay for the scheme, with the borrowing costs to be repaid from rents charged to the cinema and the restaurants in the development. At interest rates early in 2022, the scheme would have at least broken even, but at the current level of around 5% the project would be loss-making. Viewpoint: A modestly sized project, but symptomatic of cost pressures being felt across many construction sectors, particularly public non-residential work. Given tight funds and rising costs, many public authorities will be weighing up the ‘must have’ priorities (eg housing and infrastructure) and more ‘like to have’ like leisure and cultural facilities.

Private housebuilders. Former Avant Homes chief executive Mark Mitchell has returned to housebuilding with the launch of Honey, a company backed by private equity firm Alchemy Partners, Property Week (link, paywall). Sheffield-based Honey has initially agreed to acquire two developments in South Yorkshire and Derbyshire and is in advanced discussions on two other sites in the same regions, which could deliver a total of 289 homes with a combined gross development value of £87m. It is anticipated that the average selling price of Honey homes will be £300,000. Mitchell previously worked with Alchemy when the private equity firm was part of a consortium that owned Avant Homes, before it was sold to Berkeley DeVeer and Elliot Advisors (UK) last April.

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