Asset overview and performance
Stanley Green Trading Estate in Cheadle, Manchester was acquired in December 2020 for £17.3 million. At acquisition the asset comprised 150,000 sq ft of trade counter, self-storage and warehouse accommodation across 14 units on a nine-acre site, together with an adjoining 3.4-acre development site. We subsequently completed a new, 11-unit, warehouse scheme on the development site at a cost of £9.0 million. The asset now comprises 241,366 sq ft of trade counter, self-storage and warehouse accommodation across 25 units. As at 30 September 2024 the valuation was £41.25 million, reflecting a reversionary yield, assuming the new development is fully let, of 6.2%. The asset has been a strong performer since acquisition, generating a total return of 17.4% per annum to 30 September 2024 compared to the MSCI All Industrial over the same period of 6.9%. Over the six-month period to 30 September 2024, the asset delivered a total return of 4.6% which compared with the MSCI All Industrial over the same period of 3.7%.
Key Activity
- The speculative development of 11 warehouse and trade units completed in May 2023. The new units achieved an ‘A+’ EPC rating and BREEAM New Construction ‘Excellent’ accreditation. The specification includes a photovoltaic system that we expect to generate more than 250 MWh of energy per annum, 24 electric vehicle charging points and an 800kVA substation to support the on-site renewables in powering the fully electric site.
- At the period end seven units were let with a total contracted rent of £746,846 per annum, this is an aggregate 23% above the underwritten assumptions and represents 56% of the development by estimated rental value. Progress has continued since the period end with a further two units being let adding £210,796 of rent, a third unit being under offer at £120,559 per annum, which, on completion, will mean 81% of the development will be let by estimated rental value.
- A 4,000 sq ft unit on the existing estate with EPC ‘C’ was recently let at £14.00 per sq ft, whereas the comparable operationally Net Zero Carbon (in design) units with EPC ‘A+‘ have been let at around £19.50 per sq ft, reflecting a 39% premium. In addition, the Company’s independent valuer has applied a 5.35% yield to the occupied operationally Net Zero Carbon units compared to 6.5% to 7.0% for the pre-existing asset. We believe these outcomes are largely driven by the superior sustainability credentials of the new units which serve as a proof of concept of the sustainability strategy adopted by the Company.
Strategy looking forward
- The objective is for the new development to be fully let during 2024 which, combined with the three units let or under offer referred to above, would increase the net income from Stanley Green Trading Estate by approximately £600,000 per annum compared with 30 September 2024.
- The strategy for the pre-existing 150,000 sq ft of trade counter, self-storage and warehouse accommodation is to begin phased refurbishments to enhance the aesthetic and sustainability credentials of the units, with the aim of enabling us to attract and retain high quality tenants and increase the rental tone to more closely align with the rents achieved on the new estate. The first phase of the works is expected to complete in the first half of 2025.
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