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This is an excerpt from pages 11 - 13 of the Annual Report 2020

Stenprop entered the COVID-19 pandemic on the back of record levels of occupational market interest in the MLI portfolio and the successful completion of the sale of the largest building in the portfolio, Bleichenhof in Hamburg, for €160 million. As a result, the business is in a strong position from a financial perspective, with c. £60 million of free cash (after paying the final dividend of c. £9.6m), and low leverage. To date, the impact on the business can be summarised in the following three ways:

The Long-term Outlook for MLI in the UK

Prior to COVID-19, the drivers behind MLI growth in the UK were two-fold: a limited supply of MLI properties and a growing occupier base. We do not see these fundamentals changing in a post-COVID-19 world, and if anything, believe that the demand for MLI will increase.

Supply of MLI remains very tight as a result of limited land in and around town centres which are zoned for industrial use. In addition, whilst the cost of building an MLI estate remains materially higher than that of constructing a single large industrial unit (which will also attract more favourable funding options), we expect any new supply of industrial to predominantly comprise larger single-let ‘urban logistics’ properties which do not target the SME sector in general. Finally, we continue to see significant erosion of MLI supply as more secondary properties are redeveloped into residential use due to their densely populated locations and relatively low land values.

"MLI is the back office of online businesses, offering affordable, flexible business space close to market. We expect to see the growth in demand we’ve witnessed over the last decade continuing as these e-commerce businesses accelerate".

Julian Carey
Executive Property Director

Whilst a UK recession as a result of COVID-19 will inevitably impact UK SME businesses, we believe that in the long term the impact of the pandemic will be to accelerate the existing trend of more SME businesses moving into MLI accommodation. MLI properties offer occupiers the ability to do a wide range of different activities from a single premises, close to market and at a low cost. For example, the owner of a retail business can move to a MLI unit where they can house their office, storage, online distribution and showroom in a single place, with ample parking outside and all for a rent which is typically 10-50% of what they would be paying in a retail or office property in a similar location.

The virus has forced most businesses to accelerate their online offering and has motivated many to explore a greater degree of remote working. MLI properties work well for these kinds of enterprise, which require an accessible location married with flexible space which can easily accommodate a shifting balance between storage, distribution, office and retail uses.

With other trends such as greater onshoring of activities, companies holding more inventory and the Government’s push towards greater regionalisation in the UK, we believe that MLI is well placed to capitalise on the accelerated long-term shift in the behaviour of businesses and consumers caused by COVID-19. Supply constraint will remain a structural feature of the market for the foreseeable future, and hence we expect to continue to see sustainable growth in MLI rents in the future.

Case study

COVID-19 impact - Call centre enquiries
to the end of May

Call centre leasing calls

  • actual call numbers
  • trend

We constantly measure and observe the number of customer interactions we have across the internet, phone, email and social media. Looking back across 2019 we have been able to track the rise and fall of leasing enquiries against the political backdrop, and more recently against the lock down. We have noted that since the lock down occurred in the UK at the end of March that there has been a steady increase in leasing enquiries, and that a higher degree of these calls result in viewings. The above graph illustrates this and shows promising signs of an increase in business activity in the UK during May, with overall enquiry levels now back on a par with early 2020. We await to see how much of this translates into actual leasing, but the levels of interest are encouraging to see.