There is a lot to like about multi-let industrial property in the current environment. Returns from real assets have historically beaten other sectors during inflationary spikes, says AMP Capital.

Industrials REIT (MLI) owns just under 1,800 units with an average size of roughly 3,800 square feet, meaning its portfolio is approaching 7 million square feet excluding land for development. Almost all its units are in the UK where there is an enormous lack of space in and around town centres to buy or build estates.

This shortage of space, combined with two powerful trends – the increase in e-commerce during the pandemic and the re-shoring of supply chains due to difficulties obtaining goods from abroad – is driving unprecedented growth in rental uptake and renewal prices.

In the three months to December, the average rent uplift at letting and renewal for Industrial REIT was 22% making for five consecutive quarters of 20%-plus increases.

Despite this, tenant demand – especially from firms involved in last-mile logistics as well as smaller manufacturers – is rocketing, with the amount of square feet under offer more than doubling in the course of 2021 to over 500,000 square feet for Industrials REIT.

Of this, 283,000 square feet related to new lettings while 235,000 square feet related to existing customers renewing their leases.

Strong demand combined with an increasingly high quality of customers means UK rent collections were between 91% and 96% last year and had already reached 85% for the current quarter by mid-January.

During the last quarter the firm sold its penultimate overseas asset and acquired various multi-let estates in Birkenhead, Caldicot, Coatbridge, Durham, Glasgow and Stockton-on-Tees for roughly £40 million with a net initial yield of between 6% and 7%.

It has also recently finished upgrading more than 40,000 square feet of space at its Liverpool estate, which has immediately resulted in an uplift in rent from new and existing customers.

Manager Paul Arenson is confident the firm has at least another five years of average annual increases of more than 6% in total rental income, driven by more significant uplifts at renewal or new letting, on top of which the trust is paying a 4% dividend.

The last recorded net asset value per share was 158p in September but given the changes to the portfolio – and more importantly the value of the existing portfolio in total to a potential bidder – Arenson believes the actual net asset value is north of 200p per share, based on the typical premium being paid to buy a large portfolio in the market.

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