2024 was a year full of elections with surprise nominees and, indeed, parties. It also saw inflation return to near 2.0% and interest rates consequently begin to fall. But there was also a 10% rise in business failures, reflecting corporate lenders crystalising some of their delinquent debt now the worst is over. Pricing has stabilised particularly within the industrial sector.
Despite having capital to deploy in a more engaged investment market, we have not wished to commit it to transactions that carry more risk than their potential returns. However, that risk-return profile is now balancing out and we are optimistic for this year. In the meantime we have continued to increase our net cash flow and have been progressing some non-core development assets which are now coming to the point of fruition.
Inflation back to its target
Wars, with the terrible human cost for all, continued throughout the year. We hope that some or all of these will be resolved in 2025, although we suspect many will simply become frozen.
In many ways the UK economy performed as we expected, namely growth was anaemic but the property sectors adapted to the new financial reality.
Inflation is now at or around 2.0% and interest rates have been cut by 50bp this year. The recent budget with its £70bn of extra spending will boost spending in the short term and we expect further spending increases in future budgets.
A continuing theme through 2024 was the tight labour market, which is a challenge for any government in growing the economy without a surplus of labour to fuel growth.
UK property market
It is fair to say that property values which fell last year have now stabilised in most sectors at levels where buyers and sellers are more aligned. This has been reflected in investment volumes beginning to rise towards normal levels.
However, despite the two cuts in interest rates last year, swap rates have only fallen to 4.07% in December versus the 4.51% peak 14 months earlier. What is interesting is the near 100bp trading range around the current swap rate over the past year, reflecting differing opinions on the rates and speed of interest rate cuts.
After the budget long-term rates expectations rose by 25bp from c.3.75% to 4.00%. This reflected the feeling that the government will try and target growth, as shown by the spending increase in the budget and an attempt to free up planning controls, particularly in important property sectors such as housing or data centres. The jury is out about how this will translate in terms of productivity.
For property, it is likely there will be a development boost during this next five-year period, particularly towards the latter end of this parliament, primarily in the residential and technology sectors.
The knock-on effect will likely be tighter supply for sectors where there is either no established directive within the National Planning Policy Framework or, where there is, that are not part of the government’s primary target (which is housing). Tighter supply will follow because, while it is clear more land will be freed up, there will also be the local political push to use existing brownfield sites within the government’s new “golden rules” for planning hierarchy. That will translate into less land for uses that are not for housing, technology, education or hospitals.
In terms of occupational lettings in the sectors, both retail and offices (away from super prime London locations and flex offices) suffered with, arguably, a weakening in rents. As we set out in more detail below industrial has continued to perform well, continuing to meet demand because it is so adaptable.
Sandyford’s progress
Although last year’s investment market was slow, we continued to focus on generating income, by renewing leases, securing new lettings and agreeing rent reviews, which all led to strong rental growth.
Key achievements were:
- Growth in the rent roll of 22%, of which more than a quarter came from new acquisitions and the remainder through a combination of rental growth and letting of vacant space
- New lettings included a 15-year lease at Deeside Industrial Park to Astra Vehicle Technologies for a series of industrial units, totalling 69,000 sq ft. These were acquired vacant in 2023
- 72 other new lettings were completed, partly because of a much higher level of churn within the portfolio compared to previous years
- The average rental uplift with new lettings was 60%, reflecting the positive effects of some extensive refurbishment projects that took place during the year, the strong fundamentals in the multi-let industrial sector and the demand for the Sandyford product
- 40 lease renewals were completed at an average rental uplift of 39%
- Significant refurbishment and repositioning projects took place at Far Green Industrial Estate, Stoke, which welcomed five new tenants (with a further two units coming to the market) and Riverside Industrial Estate, Rugeley, where most of the refurbishment works took place in 2023 but the benefits continued to be realised in 2024. Greggs joined five other new occupiers at the estate, which benefitted from new demand from a variety of trade, industrial and leisure businesses
- At the end of the year, 95% of our rent roll was from industrial property, as our transition to being a pure multi-let Industrial property company neared completion
Prospects for 2025
We expect the growth in our net cash flow to continue this year and beyond, providing more firepower for the continuing investment into our existing portfolio and for growing the portfolio through acquisitions.
As well as the two assets acquired last year, we submitted a significant number of bids for new investments. Several of these were successful, only for the sellers to put the sales on hold due to market or tax reasons. We are confident that this year will yield some great acquisition opportunities, and perhaps even the return of some of those from 2024.
Last year, we recruited a new member of staff and we are looking to expand the team further this year. Nicky Sutton joined the finance team as financial controller, working with our managing director, Paul Brindley, and Sally Woodward, who was promoted to head of finance. This will build further resilience in our finance group as we look to expand the portfolio.
On her first day with us, Nicky found herself attending our first annual offsite at the Wolseley Centre of the Stafford Wildlife Trust (our chosen charity), where we discussed our future plans in much more detail. We came away with an agreement on a broad six-year plan to 2030 and the key milestones within that plan.
We wish you all a prosperous new year.
