Segro is re-investing almost €220 mln from disposals in 2012 on development projects as the listed industrial property specialist sees demand for space growing among specific users.

Segro is re-investing almost €220 mln from disposals in 2012 on development projects as the listed industrial property specialist sees demand for space growing among specific users.

'Despite the general low growth environment parts of the economy are starting to look very interesting,' Segro CEO David Sleath told PropertyEU.

Sleath said the opportunities range from distribution warehouses for bulk goods to demand from retailers who are rethinking their supply chain to reduce costs and improve efficiency.

'There is quite a demand for warehouses, but beyond that even in Western Europe high-tech manufacturing has had something of a renaissance, and we have been doing a number of new builds,' he said.

Recently Segro completed a 8,800 m2 facility for Rolls-Royce at Heathrow Airport in the UK. Rolls-Royce has taken a 25-year lease on the site for the maintenance of jet engines. Another growth area is urban distribution warehouses featuring edge-of-town space for parcel delivery companies 'undertaking the last mile delivery'.

Sleath spoke to PropertyEU following the publication of Segro's 2012 results. For more see Segro's earnings per share rise 4.9% in 2012.

The fly in the ointment - which Segro had warned about in January - was the valuation of the portfolio of assets in the UK and Continental Europe which dropped from £5.1 bn (€5.9 bn) to £4.6 bn. Segro blamed the £309 mln, 6.2% reduction on a like-for-like basis, on the performance of its non-strategic assets (£144 mln), remaining smaller non-core holdings (£44 mln) and South East UK suburban offices (£79 mln).

Segro is working to dispose of its non-core assets and focus on its core industrial portfolio which is performing well. 'The latter saw a very modest reduction of just 1.2% in what has been a softer market generally compared with overall IPD index down 3.1%,' Sleath said.

During 2012 Segro agreed £700 mln of disposals of non-core assets. 'Given that we announced the disposal target 16 months ago of £300-500 mln a year we are ahead of the plan there in what is a tough market,' Sleath said.

The proceeds are being re-invested. 'We have invested or committed £450 mln during 2012. Of this, £200 mln went toward acquisitions of big box warehouses in the UK and France.'

A further £218 mln is being pumped back into the development pipeline. 'There is a lot of development momentum - we completed 21 schemes in 2012, more than we have done in several years, and there are another 14 in progress. Selling secondary assets at an average exit yield 7.25% and re-investing in a blend of acquisition and development at 8.5% feels like a good trade,' Sleath said.