Sheds have been somewhat overlooked in all the talk about where we are in the property cycle, consigned to the periphery of the debate, just as their domestic counterparts are to the bottom of the garden.
Yet last year was one of the strongest ever for investment in industrial & logistics assets, and for all the fears surrounding the global economy and a possible Brexit, this year is poised to be strong as well.
Whether it will be quite as strong is another matter. There are mixed messages from this week’s two big shed deals. The first, struck by ‘godfather of sheds’ John Cutts at a punchy yield of 4.5%, defies the yield stabilisation trend identified in a recent Lambert Smith Hampton report. However, the second, by Vincent Tchenguiz’s Consensus Business Group, reflects a yield of around 5.75%, more in line with expectations.
So what do they tell us? Well, for one, they tell us investor demand remains remarkably robust. Mountpark Logistics’ deal is with an undisclosed private Korean investor, showing that Asian investors are not just interested in London offices and residential - and that global turmoil and Brexit are far from the deal killers they have been made out to be by some doom-mongers. Meanwhile, Tchenguiz is selling its Midlands DC to Colin Godfrey’s Tritax Big Box REIT, which signalled its intention to go on a spending spree two months ago when it raised £200m via a share placing.
More importantly, though, they tell us that covenant strength is all. It is no coincidence that the 1m sq ft fulfilment centre being sold by Cutts is to be occupied by Amazon, the retailer with possibly the strongest covenant out there at the moment. Consensus, on the other hand, is selling a shed let to Dixons Carphone, which is not quite in Amazon’s league.
That said, like Amazon, it is very much in the online space via its Currys PC World and Carphone Warehouse brands - and online is very much driving the whole ‘logistics is the new retail’ movement, or more accurately the big online players are.
Not so long ago, of course, it was the big grocery players. Could they get back in the driving seat? Don’t bet against them. The Argos brand may be more naturally aligned with the Asda brand than Sainsbury’s, but that deal could be transformational for Sainsbury’s - and crucially, it enables it to take the fight to Amazon as it inches its tanks ever closer to the supermarket group lawns through its fresh food offer.
Tesco’s announcement that it is back in profit for the first time in yonks also suggests ‘Drastic’ Dave Lewis’s turnaround strategy is starting to work. However, confirmation of the much-touted sale of garden centre chain Dobbies was conspicuous by its absence. And what of posh coffee shop chain Harris + Hoole, Euphorium Bakery and family restaurant chain Giraffe? He will have to live up to his moniker and get rid of a few more non-core businesses yet if he is to get the Tesco juggernaut back on track - and then work out what he’s going to do with the surplus space. A word of advice: think clicks ‘n bricks, not bricks ‘n mortar outfits you don’t know how to operate.
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