Strategic approach helps Tritax navigate logistics headwinds

A multi-skilled asset management team is serving clients well, says Petrina Austin.

Logistics and industrial real estate has been the stellar performer among asset classes in recent years.

Throughout the pandemic and beyond, demand has been such that investors have enjoyed levels of rental and capital growth that other sectors have not seen. But as inflation begins to dominate economic debate in the wider world, might there be a point at which ‘affordability’ begins to choke the sector’s success?

“It is basic supply and demand,” says Petrina Austin, partner and head of asset management at Tritax Group. “With vacancy rates in this sector at below 3% and demand and inquiries still significant, it has pushed up rents in some areas approximately 20% over the last year.” But crucially, she points out, rent remains a relatively small component of overall supply chain costs, “which is what we really focus on for our customers”.

Rent has to be seen in the context of total costs of which 70% to 80% are attributable to labour and distribution. However, in the last year utility costs have spiked by approximately 40%. “For a number of our customers who have highly automated units, that is a significant unforeseen cost,” Austin states.

For companies in England and Wales, there has also been a revaluation of property for business rates (property taxation) purposes which in some areas has meant a 30% increase for some pure play e-commerce distribution operations.

“The upshot of all of these costs is that a number of our customers are looking at how they can benefit from better economies of scale,” Austin explains. “They can do that by consolidating from smaller, older, less efficient units into a larger single platform with the economies of scale of management and better specification.”

Partnering with customers

Taking a strategic approach to asset management is also important. “Standard asset management relies on lease events like rent reviews and lease expiries to generate a conversation with a customer. We like to really partner our customers and bring more lateral thinking to it.”

It is a case of discovering how the asset fits into a company’s network and its business and ascertaining whether it will be fit for purpose for the future. “We’ve developed the skill set of our asset management team so that, aside from just property expertise, we also have third party logistics expertise, occupier expertise, ESG, and also we have a head of strategic power which has been an increasingly important area for our customers.”

Austin explains that each team member “buddies up” with somebody within the customer organisation to achieve a more holistic perspective of what is important to the customer. “We want to find solutions for them, we want to be their landlord of choice for the future and we want our asset to be resilient and fit for purpose for the future,” she says.

If the customer’s ideals cannot be satisfied in the current unit – perhaps a mezzanine floor has already been built or the building cannot be extended or it is no longer the right location for their network – the group’s development platform can be brought to bear. “We’ll have a number of options through various different stages of the planning and development process and we’re hopeful that we’ll be able to find an alternative solution,” she says.

Embedding ESG

ESG is embedded into everything the company does, Austin explains. “We don’t shy away from assets which don’t meet our ESG criteria. However, we do assess whether there is an ability to retrofit and improve to meet our key criteria.
That’s absolutely essential for our customers because that’s what they need for the future.”

Most customers have published agendas and set key milestones and deadlines to meet their net-zero timetables. “There is a need for landlord and tenant to work collaboratively to be able to achieve those ideals,” Austin says.

Roof-mounted solar, electric vehicle charging points, wind turbines, rainwater harvesting are some of the options. Onsite amenities that help in the process of attracting and retaining the right labour force – including good cafeteria space, breakout space, internal gyms, outside seating areas – also help.

“We see the labour conundrum really linking with the ‘S’ of ESG,” Austin says.