Urban Logistics REIT – ‘Fundamentals strong’ as values stabilise

The industrial and logistics sector suffered its largest fall in value on record in the second half of 2022, even eclipsing that of the global financial crisis, as investment yields moved out rapidly to keep pace with interest rates. The re-rating of Urban Logistics REIT’s (SHED’s) share price was at an even greater velocity, putting it on a wide discount. However, evidence that values may have bottomed out appears to be building, with MSCI reporting uplifts in March for the first time in months. Whilst SHED has yet to announce its end of March NAV (due in June), it is currently trading on a discount of 27.6%.

The fundamentals supporting rental growth in the last mile, urban logistics sub-sector remain strong, according to the manager. It says that demand for space, specifically from third-party logistics (3PL) operators (which make up a large portion of SHED’s tenant base), is robust (see page 5), while supply constraints remain.

A fifth of the company’s leases are either expiring or have a rent review by September 2023, presenting SHED with the potential near-term opportunity to capture rental growth still apparent in the sector.