Segro sees signs UK is bottoming out

Europe's largest listed industrial landlord, Segro said on Thursday it is confident signs of recovery in the UK commercial property market can be sustained, as values continue falling on the continent, newswire Reuters reported.

The rate of decline in UK commercial property values has slowed after falling about 45% since a peak in mid 2007. Segro said it is encouraged by the moderation amid signs of a bottoming out in the investment market.

'We do think it's sustainable ... our own view is we've seen a 300-350 basis points shift in yields in the two years since June 2007, and we think that values are now pretty stable,' Segro CEO Ian Coull said in a conference call.

Segro’s portfolio fell in value by £492 mln (EUR 559 mln) in the first half of the year, or 11.3% reflecting a 13.7% decline in the UK and a 7.2% fall in continental Europe.

Segro, which on Monday completed its takeover of UK rival Brixton, said while it does not expect commercial property values in continental Europe to fall as much as in the UK, it will be some time in 2010 before capital values hit a bottom.

Segro said it expects further insolvencies among its customers in the months ahead, along with space being returned as businesses rationalise or downsize their space needs.

Segro reported net rental income rose 8.7% to £129.7 mln pounds in the first six months of 2009, from a year earlier, due mainly to newly let projects. Its vacancy rate increased to 11.3%, from 9.8% at end-December, due to development completions, take-backs and disposals of let assets.

Following its acquisition of Brixton, the company has a net debt of £2.5 bn, and £1.1 bn in cash and undrawn facilities, Segro said.