We generally choose to develop our big box
schemes on a pre-let basis to limit development
risk, so reduced pre-let volumes across the
market in 2024 have resulted in a lower level of
development completions, development spend
and new projects than we have seen in recent
years. We recently commenced a speculative big
box scheme in Dortmund based on the shortage
of supply in that region and the encouraging level
of enquiries that we are seeing, and, based on the
conversations we are having with occupiers in
other markets, we expect to see development
volumes pick up as the year progresses. We have
continued to progress our speculative urban
schemes in markets where occupier demand has
been more buoyant, for example in German urban
markets such as Berlin, Cologne and Düsseldorf.
Our development teams have also been working
hard on preparing future schemes, including
progressing large-scale infrastructure works at
our big box developments in Northampton and
Radlett. We are also actively progressing the data
centre opportunity within our portfolio, working
to secure planning and power for the more
than 2.3GW of opportunities that we have
identiied across Europe – the approval of the
Simpliied Planning Zone on the Slough Trading
Estate, with its expanded parameters, will provide
a signiicant competitive advantage in the
delivery of several projects.
Liquidity in investment markets has improved
and asset values appear to have stabilised
Inlation falling back towards central bank targets
and initial interest rate cuts helped liquidity return
to investment markets during 2024 and there
continues to be good investor appetite for
industrial and logistics assets.
This has led to higher investment volumes and
has helped yields to stabilise. Prime yields in
the UK were lat during 2024 (CBRE prime yield
remained at 5.25 per cent throughout the year)
and although there was some small further
outward yield shift in certain European markets
in the irst six months of the year, most markets
were stable in the second half of the year. (CBRE
prime yield France +15 basis points and Germany
+10 basis points, all in the irst six months of 2024).
Finance costs remain elevated which means
most debt-backed buyers have been active in
the higher yielding end of the market. This has
resulted in less capital chasing lower yielding,
prime assets. Investors have been selective,
focusing on assets in the best locations with
the highest sustainability credentials and where
there is reversionary potential that can be
captured quickly.
The outlook for yield and asset valuations is
notoriously hard to forecast. The recent ‘higher
rates for longer’ narrative has so far not had a
discernible impact on investment market liquidity.
However, as active portfolio managers, we do not
rely on yield compression but aim to create value
across the property cycle through asset and
portfolio management and driving rental growth.
Allocating our capital into the opportunities
with the most attractive risk-adjusted returns
We remained disciplined in our allocation of
capital during 2024. Although quieter pre-let
markets across Europe resulted in lower
investment into development than anticipated,
we took advantage of investment market
conditions and attractive pricing to acquire assets
in our core markets which oer potential for
strong mid-term returns.
Our investment teams used their local market
knowledge and strong relationships to identify
opportunities to acquire high-quality assets in
prime markets, where we have less land (and
therefore less development opportunity), which
complement our existing portfolio and oer
strong rental growth potential.
We were also agile in our recycling of capital,
completing almost £900 million of disposals.
Around half of these were sales of assets and
land where we had identiied special or motivated
purchasers, crystallising very attractive proits
versus book value. We also sold other assets that
we had identiied during our annual asset review
process as having weaker future returns potential.
Chief Executive’s statement continued
During the year, we made an all-share oer to
acquire Tritax Eurobox plc, an externally managed
REIT with a portfolio of high-quality big box
warehouses in Continental Europe, whose
shares had consistently traded at a signiicant
discount to its net asset value. Although we were
unsuccessful in buying the company due to a
rival, higher, oer, we instead negotiated a
transaction with the eventual purchaser on
behalf of our joint venture, SELP, for six assets
in Germany and the Netherlands, exchanging
contracts in January 2025 and we expect to
complete on this transaction later in the irst
quarter. This is the part of the portfolio over which
we had the most conviction and our decision not
to counterbid relects our determination to
maintain capital discipline.
Balance sheet remains strong with plenty
of irepower
Our balance sheet is in great shape, with
moderate leverage and limited near-term
reinancing requirements. In the past six months,
we have taken advantage of liquidity in debt
capital markets to issue an eight-year €500 million
Eurobond from SEGRO and a seven-year
Eurobond from SELP at coupons of 3.5 and
3.75 per cent, respectively, which have extended
our average debt maturities and had only a
modest impact on our 2.5 per cent weighted
average cost of debt.
We raised £907 million through an equity placing
in February 2024, to deploy into the most
attractive development and investment
opportunities as activity in occupier markets
picks up. This, alongside the proceeds of
disposals, provides us with signiicant irepower
for continued investment.
Recent acquisitions, deliberate portfolio
management and our ongoing development
pipeline have allowed us to achieve critical mass
in most of our markets, which means we will be
able to deliver increased operational leverage as
we grow our business. We have also been
investing in developing our digital capabilities to
drive cost eiciency and create a more scalable,
technology-enabled platform.
Signiicant value creation opportunity
in data centres
One area that continues to grow regardless of the
macroeconomic environment is the data centre
sector, which is being driven by the exponential
growth in demand for data as consumers
digitalise their day-to-day lives, and companies
increasingly use data to drive their businesses
and move to cloud-based technology solutions.
The growth of generative artiicial intelligence is
also seeing very signiicant investment into data
centres by so-called ‘hyperscalers’.
Demand for data centres comes from two
main sources:
– Cloud: businesses are increasingly transitioning
their IT infrastructure to data centres, ideally
with low latency, enabling applications for end
user businesses and consumers to be run
remotely instead of running software and
storing data locally. This demand is typically
focused on Availability Zones.
– Artiicial Intelligence: this is expected to drive
signiicant growth. Many of the large hyperscalers
(such as Amazon Web Services, Microsoft and
Google) have announced signiicant investment
into their European data centre capacity over
recent months. The ‘inference’ (user-interface)
element of this demand is likely to focus on key
Availability Zones but the ‘generative’ (machine-
learning) element can happen in more remote
locations where power is more readily available.
Supply of new data centres is limited by a lack
of power infrastructure, a shortage of land and
restrictive planning permissions in key Availability
Zones across Europe – which in turn is driving
strong rental growth and high land values.
We have chosen to focus our data centre
investment on key Availability Zones, close to
major urban conurbations and aligned with our
existing urban footprint, which means that we are
positioned to beneit from both growth in the
Cloud as well as the ‘inference’ elements of AI
that require close proximity to end users. It also
means we retain maximum lexibility in this
fast-evolving space.
13 | SEGRO plc Annual Report & Accounts 2024 Overview Strategic Report Governance Financial Statements Further Information