SEGRO, Tritax Eurobox and Warehouse REIT are broker’s top picks in booming warehouse sector

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With online shopping, and therefore the demand for warehouse space, growing apace during the pandemic Berenberg has run the rule over the major logistics plays in the property sector.


The industrial and logistics real estate sector makes up roughly 40% of the UK property sector according to the German bank.


Berenberg acknowledged that online penetration rates will fall from pandemic peaks but said the step-change in infrastructure requirements and tenant demand seen during the pandemic is likely to persist.


European logistics real estate increased 9% over the course of 2020, leading to a record take-up of 4.7mln square metres (sqm) in the UK and 26.3mln square feet in Europe, Berenberg noted, bizarrely using metres for the UK and feet for the European mainland.


“Rent collection averaged 98% during the peak pandemic quarters of March and June last year, significantly ahead of the wider sector at c82%. Deep occupational demand has translated into rapid occupier take-up as businesses scramble to build out e-commerce capability, secure supply chains, enhance logistics networks and onshore manufacturing functions. Investment markets have followed suit, with investment transaction volumes growing by 83% in the six months to June 2021 (versus H1 2019),” it said.


The outlook remains bleak for old school retail estates whereas demand for warehouse space looks like it is only going to go one way (up). According to Berenberg, retail property plays represented around half of the sector in 2011; it is now down to about 30%. Over the same period, the industrial and logistics sub-sector has seen its share double to 23%.


“Although the sub-sector has outperformed the EPRA UK index by 45% since July 2018, we believe that a significant opportunity, conducive to continued outperformance, remains for landlords and developers alike,” Berenberg said.


In layman’s terms, that means that if you have been late to the industrial and logistics property party, it’s not too late to get on board.


Berenberg’s preferences in the UK sector are for SEGRO PLC (LSE:SGRO), Tritax Eurobox PLC (LSE:EBOX) and Warehouse REIT PLC (AIM:WHR).


“SEGRO is the market leader with UK/European exposure, a portfolio of big and mid-box assets, a land bank capable of providing c3.8mln sqm of development and standout ESG [environmental, social and governance] credentials,” Berenberg said.


It rates the shares a ‘buy’ and has a price target (PT) of 1,500p.


Tritax Eurobox (PT 130p) has exposure to early-stage European big-box logistics markets, which Berenberg thinks offer the highest potential for rental growth and increases in the value of the properties.


Warehouse REIT, meanwhile, has concentrated exposure in the northwest of the UK, “a stronghold for both e-commerce and manufacturing”.


Shorter-term leases and significant development potential provide scope for upside, Berenberg said, which has a price target of 200p for Warehouse REIT.

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