Warehouse firm Segro sees e-commerce boom offsetting costs

By Aby Jose Koilparambil

(Reuters) -British warehousing group Segro expects strong demand from e-commerce companies to boost rents and protect margins from a 5-10% increase in building costs this year, its finance chief said on Thursday.

The company, which manages assets worth 18.4 billion pounds ($24 billion), expects to spend about 700 million pounds this year on developing new facilities across all eight European countries where it operates, including Britain.

The London-headquartered real estate investment trust said the war in Ukraine, which Russia calls a “special military operation,” had exacerbated supply chain and cost pressures in the construction sector.

Chief Financial Officer Soumen Das told Reuters the crisis had further constrained supplies of building materials, particularly steel, following disruption caused by the pandemic, and that rising labour costs were adding to the pressure.

However, Segro, which is listed on Britain’s blue-chip index and operates 90 million square feet of warehouse space, the equivalent of over 1,500 soccer fields, said demand remained robust, leading to a strong start to the year.

“The e-commerce and digitilisation trends meant the demand from our occupiers is very high,” Das said.

Warehousing companies have benefited from cut-throat competition among rapid delivery firms as retailers race to set up distribution sites and from a shift from traditional manufacturer occupiers into areas such as data centres.

Das said fewer than expected projects would be built because of the rise in construction costs, but limited supply would support rental growth due to the strong occupier demand.

Segro said contracted rental income, which excludes space taken back for redevelopment, grew about 39% to 25 million pounds for the three months ended March 31.

Britain accounts for 65% of the firm’s overall assets, while other major markets include Germany and France.

($1 = 0.7674 pounds)