centers, light industrial manufacturing and production, even
car showrooms. It’s been a tough couple of years for this
segment, but we have a broad spread of occupiers, and that
diversity has helped us through this.
Data centers are the fastest growing segment, and we’re
probably the biggest owner in the U.K. We have a number of
data centers for single occupiers, such as banks that want their
data center offsite but accessible. Most of our data centers run
50,000 to 60,000 square feet, up to 100,000. Typically they
want a long lease, such as 15 years. This is a very stable business.
The logistics market has stalled quite a bit everywhere. ProLogis is still the leader, but all of us have suffered from the dramatic drop in demand that occurred last year. This has created
pressure on rentals and excess vacant space across Europe.
Office is a very small part of our business. We build and
lease office space only when an opportunity exists on the
edge of our logistics space. In the past few years, we have
done virtually no new office space.
REI T: You mentioned pressure on rentals in logistics. Is that
continuing to affect other segments of your business as well?
Coull: Rentals continue to be under pressure in every sector.
Rentals have declined 6 percent to 7 percent last year and 3
percent the previous year, so we are down by 10 percent. Logistics is the worst as far as rentals; data centers are better.
Our suburban locations have helped us to withstand the
pressure on rentals better than some. Also, the proximity of
many of our locations to airports has helped us, because that
is a preferred location.
Unfortunately, we find that tenants are aware of the
strength of their position, and we find that negotiations are
tougher these days.
REIT: In terms of size of property under management,
SEGRO is one of the largest REITs in the world. Besides
size, what differentiates SEGRO from its competitors?
Coull: We have a very short, six word philosophy: “Buy
smart. Add value. Sell well.”
We add value by refurbishing, redeveloping, moving ten-
ants, rescheduling leases or some combination of these. By
improving the asset, we improve cap rates and price. Others
hold assets. We don’t.
By selling, we can recycle capital and reinvest in new
properties. So far this year, we already have sold £300 million ($470 million) of assets. In the last six months, we
have seen a widening of the gap in value between prime
and non-prime, which makes prime assets more attractive
REIT: In this challenging business environment, is there still
a place for SEGRO’s commitment to sustainability?
Coull: Sustainability is here to stay. It is very important
throughout Europe, with Germany and Scandinavia leading
If you looked only at the financial reasons, you would put
sustainability on the back burner, but our customers still
want it, so we have continued with it. Today, sustainability is
an imperative for the world.
REIT: In 2009, SEGRO purchased Brixton, the U.K.’s
second-largest industrial real estate operator and its biggest
competitor. Was this a wise move in the middle of a recession?
Coull: Ninety percent of their properties are in southeast
England, around London and Manchester, so their portfolio fit beautifully with ours. That gave us the advantage of
being able to operate their portfolio at no additional cost,
something no other bidder could do. The purchase brought
1. 3 million square meters into our portfolio at virtually no
additional cost for operations.
We believe the purchase will be great news for our future
REIT: What are your plans for 2011 to maintain a strong
balance sheet and preserve your strengths?
Coull: At the time we purchased Brixton, they had high levels of vacancy at 22 percent. We now have the opportunity to
fill that void with tenants. That is our biggest single target,
and it will drive our growth and earnings.
We also want to get our overall vacancy level down. After
having a historical vacancy rate of 10 percent, the purchase
drove it to 13. 5 percent at the end of 2009. Getting it back
to 10 percent is our goal, something that will take two years
to three years.
Additionally, we will continue to sell our non-prime assets
into the market.
REIT: What does SEGRO have to offer potential investors?
Coull: We are a significant industrial player with a $9 billion
portfolio, a sound business model as a REIT, and we have
great people. We recruit and train the best. F