We take a very disciplined approach to investing in MLI in the UK. Specifically, we only buy purpose-built MLI estates in densely-populated areas.
We only buy purpose-built MLI because it is best suited to the needs of our tenants, namely to provide simple, clean, efficient space in which to conduct myriad different business activities. This means around 10% office content, a roller shutter door, a dedicated yard area and car parking spaces. We find that these assets are enduring in their appeal and are the cheapest to keep running. Where MLI assets are created by carving up a larger unit, we tend to find that you end up with some units which are out of proportion, with the wrong ratio of office or yard space to the warehouse, low eaves or inefficient shapes. The compromised units are often more difficult to let and attract lower growth.
We focus on areas of dense population because our customers, SME companies, are focused on serving the 68 million people who live in the UK. Therefore, they want to be close to their market and where people live, so estates in these areas perform better. Also, with a growing number of people living in towns and cities and fewer living in rural areas, these assets are likely to outperform in the long term. Finally, when an urban asset does reach the end of its economic life, it is likely that the underlying site will have a higher alternative-use value (such as residential), which delivers a nice bonus once you’ve extracted all the income you can from the property.
This disciplined approach means that we reject 9 out of 10 MLI estates which come across our investment desk. However, with a market size in excess of £50 billion and annual investment volumes of £5 billion+, we still have plenty to choose from.