Busy times for Tritax Big Box

This is good news for Tritax Big Box (BBOX), which at its 2018 year end was sitting on a £3.42bn portfolio comprising 54 urban logistics assets and 114 acres of strategic land. Demand for large warehouses, typically over 500,000 square feet (sq ft), is so strong that at the December year-end there was just one building to let in England. Supply has started to accelerate, but is not keeping up with demand; as more and more consumers turn to online shopping, 18 per cent of all retail sales are now conducted over the internet.

The take-up of warehouse space in the UK during 2018 was a record 31.5m sq ft and demand is showing no signs of abating. Even Brexit could prove favourable because in the event of a hard exit, companies are likely to need more space to stockpile imported components. And land is becoming harder to acquire, especially in close proximity to large towns.

Tritax's contracted rent roll grew by 28 per cent to £161.1m in 2018, and total return (being the increase in net asset value plus dividends paid) was an impressive 12.1 per cent, easily beating its 9 per cent-plus target. And there is more rental income yet to be realised because a lack of supply is underpinning rents. Last year CBRE recorded a 5.6 per cent uptick in prime UK urban logistics headline rents, including a bumper 11.1 per cent rise in the south-east excluding London. The company's own asset management and refurbishing efforts are also boosting its income.

The supply and demand imbalance underpins the logic of developing new properties – the risky end of the property business. Tritax reduces the risk of its new developments by working on a pre-let basis, and of the eight assets acquired in 2018, seven were on a forward funded pre-let basis. The other was a standing asset. Meanwhile, Tritax's 114 acres of land comprises the former Littlebrook power station at Dartford. This is located on the riverbank and is inside and adjacent to the M25. Detailed planning consent has been acquired for phase one covering 450,000 sq ft, and there is a potential 1.7m sq ft available. Total development cost will be around £900,000 per acre compared with two recent sales achieved at £3m an acre on comparable sites.

In February, after the year-end, Tritax acquired 87 per cent of db symmetry for £255m, funded through a £250m placing and open offer at 130p and the issue of 40.5m shares to the seller. db is an industrial logistics developer, which will give Tritax access to a potential 38.2m sq ft of logistics assets, compared with its existing portfolio of 29.8m sq ft. This will expand its exposure to more financially rewarding pre-let forward funded developments.