November 28, 2018 / 8:24 AM / 20 days ago

LondonMetric sees higher demand for distribution centres ahead of Brexit

(Reuters) - Warehouse owner LondonMetric Property (LMPL.L) said on Wednesday companies were seeking additional storage and distribution buildings to help avoid supply chain disruptions ahead of Britain’s planned departure from the European Union.

FILE PHOTO: Parcels are sorted for distribution at Amazon's centre in Peterborough, Britain November 15, 2017. REUTERS/Darren Staples/File Photo

A raft of companies, unsettled by the uncertainty around Brexit, have announced plans to stock pile products ranging from drugs, chocolate, tiles and raw materials to parts for the engineering industry.

“There is growing evidence that occupiers are intensifying their search for additional distribution space both to increase near term storage capacity as well as longer term solutions to maximise the efficiency of their global supply chains in a post Brexit environment,” LondonMetric said in a statement.

“What we’re finding a little bit is there are companies who are getting into increasing inventory ... We are having conversations with people who are conscious of an uncertain Brexit outcome,” Chief Executive Officer Andrew Jones told Reuters, adding that LondonMetric had talked with companies in the automotive and healthcare sector.

Barely four months before Britain is due to leave the European Union, Prime Minister Theresa May has failed to get much of her own Conservative Party behind the agreement sealed with EU leaders, leaving open the possibility of a no-deal Brexit.

Shares of the FTSE 250 company, which counts Associated British Foods’ (ABF.L) Primark, Dixons Carphone Plc (DC.L), Marks and Spencer Group Plc (MKS.L) and Amazon.com Inc (AMZN.O) among its top tenants, were little changed at 185.3 pence in early trade.

BRICKS TO CLICKS

LondonMetric also echoed UK property sector bellwether British Land Company Plc’s (BLND.L) warning on falling values in the brick and mortar retail space. .

The company believes there is still more value destruction in the retail space as yields expand, more retailers fail and rents fall as the retail “survivors” inherit increasing pricing power.

“The strong survivors are the new price setters leaving landlords with the unenviable decision of either taking back yet another vacant unit or being a price taker and accepting reduced rents, shorter leases and more generous tenant incentives,” the company said.

LondonMetric said it was reducing its exposure to multi-let properties for general retail stories, adding that it remained attracted to the convenience sector, which was benefiting from a shift in shopping patterns.

While it still owns High Street locations, LondonMetric has been shifting away from traditional brick-and-mortar retail to building and owning distribution centres, including partnering with Amazon, as online shopping grows.

The strategy paid off with net rental income rising 5.8 percent to 47.1 million pounds in the six months ended Sept. 30, with distribution accounting for over 70 percent of the company’s portfolio.

Reporting by Karina Dsouza, Arathy S Nair and Tanishaa Nadkar in Bengaluru; Editing by Bernard Orr and David Evans

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