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Strong demand sees Industrials REIT proactively replace non-performing tenancies

Industrials REIT (MLI) has published a trading update for the second quarter of its financial year (1 July 2022 to 30 September 2022), which includes up-to-date information on transactions and rent collection across the MLI’s whole portfolio. MLI reports that tenant demand has continued to be strong, with the average uplift in rent upon lease renewal or new letting rising to a new high of 30%, allowing MLI to deliver its eighth successive quarter of over 20% growth in this key metric. MLI says that it has also benefitted from the growing efficiency of its Industrials Hive platform which has enabled it to complete 20% more lettings in the second quarter than any before, helping to capture and capitalise on the strong demand from tenants.

MLI’s CEO, Paul Arenson, says that the underlying strength in occupier demand gave them full conviction to take planned proactive steps to actively forfeit and replace nonperforming tenancies that had been protected by the pandemic moratorium for the two years ended 31 March 2022. As a result of this replacement programme taking place in the quarter, MLI’s occupancy and like for like passing rent levels decreased marginally by 0.7%, but Arenson says that they are confident, given the strength of occupier demand and the levels of interest already received, that this will reverse once the vacated space has been relet to new customers paying higher rents and with more sustainable business models. Underlying annual growth in like for like passing rent continues at approximately 4.0% per annum, after adjusting for a single large outstanding rent free on a renewal which was recently completed.

MLI says that investment activity has largely been put on hold whilst it sees how capital values react to the changes in interest rates, higher inflation and recession risk. However, the management team continue to watch the market carefully and believe that attractive and accretive acquisition opportunities will emerge once the market has gone through a period of repricing. Arenson says that “Demand for MLI remains robust and we can continue to lease space at attractive rents with minimal incentives. We anticipate that the trading environment will become more difficult over the next 12 months, but to date we have not seen any evidence of this in our portfolio and, with our strong balance sheet, feel well placed to weather the challenges that may lie ahead.”

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