If you are to successfully navigate a crisis, your chances of success are vastly improved when approaching it from a position of strength. Just ask SEGRO.
Last month, the industrial REIT reported rises in profit and valuation, a low vacancy rate and an increased development programme, helping it remain the UK’s largest listed property company. It is true that logistics, a sector that saw record take-up in the first half of 2020, continues to thrive. But as one analyst noted recently, sheds may be sexy, but it’s SEGRO that made them so.
Much of the credit for that should go to Andy Gulliford, chief operating officer. Gulliford has worked alongside chief executive David Sleath for the best part of 15 years and has been instrumental in delivering the company’s operational performance across its European footprint.
Formula for success
The focus in real estate is so often on the top line but, at a time like this, operational efficiency matters every bit as much. Marry the two – and combine it with successful delivery of a clearly defined and articulated strategy – and you have a formula for success whatever circumstance might throw your way. No wonder, in the face of Covid-19, SEGRO’s strategy to create a portfolio of high-quality, big-box and urban warehouses in Europe’s strongest markets is not about to change.
“The pandemic has really accelerated some of the themes that were already behind our business and our progress,” says Gulliford. “Something that has really come through in this pandemic is that the warehousing, logistics and industrial sector has been pretty much viewed as national infrastructure. It is seen to be the sector that stayed open when other operational sectors, for example student, have had a more difficult time. 20% was pretty standard UK e-commerce penetration in retail, and food was probably less than 5%. But look how that’s turned on its head.”
Something that has really come through in this pandemic is that the warehousing, logistics and industrial sector has been pretty much viewed as national infrastructure
– Andy Gulliford, chief operating officer, SEGRO
In the UK, booming online sales lie behind some surprisingly robust retail numbers. Meanwhile, online’s share is growing faster off a lower base in Europe. “Certainly the online and digitalisation piece has accelerated,” says Gulliford. He notes that the continent’s penetration rate has markedly increased, even if it might not stay at the levels it has reached.
“I think people will stick with the convenience and, frankly, in the short to medium term, the safety of delivery, as opposed to going to shopping centres,” says Gulliford.
But it’s not just retail that lies behind SEGRO’s success; neither will the company stand still. “There’s huge demand for data centres and that’s a massive area for us,” he says. “The interesting bit will be, what does change?
“Does the design and format of our space change, for example? Will there perhaps be some more offices on our estates and parks because they can be reached by car and people can easily socially distance? Will there be changes within warehouses for social distancing? It [gives] rise to the thought of more automation and robotics … Does that accelerate?”
Gulliford also sees change being wrought by the environmental, social and governance agenda. “If ever there was ever an environmental experiment, I guess this pandemic is it,” he says. “In changing our behaviours, we have patently changed the world around us. We’re keen to press on that and the social part of that as well, helping communities.” SEGRO brought forward its centenary fund, a £10m commitment over 10 years to support communities where the company has a footprint. “We took our first million out of that and got it fast into Covid-related help,” he says.
Agility and efficiency
Like all of us, SEGRO had to respond quickly to a new way of working as lockdowns were imposed. With a sizeable business in Italy, it saw how the pandemic was spreading and quickly implemented a homeworking plan for its 350 staff. It’s likely to change the business permanently. “The big shift was, you were very in the moment,” says Gulliford of those early days and weeks. “It was about, initially, panicky customers asking: ‘Are our estates still going to be open?’ That’s a very natural human reaction that we were responding to.”
Gulliford himself was never one for remote working but he’s rethinking that – for himself and for the business. “I’m sure we will be more agile with our working methods going forward,” he says. “If I’m going on to a Teams call with the leader of the southern European business, why would I commute to an office in central London to have that call, when I could do it quite happily from home? I’m pretty sure our offices will become more collaborative spaces. It’s getting that kind of mix and balance that we’ll be looking at.
“The difficulty with agility is if we’re all agile, we don’t actually get to collaborate. My routine might be different to your routine. But I think there will be changes going forward.”
Another thing that hasn’t changed in this crisis is the rounded way in which SEGRO judges efficiency. “For us efficiency is really about having a sufficient critical mass in a location to make it warranted,” he says. “That’s not just about a cost saving, which it does bring, because clearly, the bigger the portfolio, the more profitable and cost effective the rent roll you’re running with the same amount of resources.
“It’s actually an efficiency of knowing your stakeholder group, knowing the local authorities and municipalities well, so that you can move more quickly through those relationships. It’s about knowing your customer base and being able to move customers around. Where we haven’t been able to get critical mass we have found it very inefficient.”
Gulliford cites SEGRO’s exit from Austria earlier this year as an example, as well as Belgium in 2018. “Where we think there is opportunity to grow, cluster and get critical mass – Spain, Italy, for example, the Netherlands – we’re pushing on those areas,” he says. “There is still an agenda for growth. But our efficiency is really in knowing areas very well and being quite large in those areas.”
Data’s role
Tech and data will underpin that efficiency drive too. “For the first time, we’ve employed a couple of data analysts,” he says. “We’ve created a new division, our digital tech and innovation division within SEGRO, to take things forward, not just for our own working environment … but for our customers as well. Smart technology, smart buildings, digital twin buildings. That’s what we’re looking at and I think that’s where the kind of efficiency gains will really come from.”
For a company that celebrated its 100th birthday in May – and yes, the planned celebration was abandoned and replaced with a virtual one – SEGRO continues to be one of the most innovative and admired real estate businesses of the last decade.
There’s little to suggest that will change any time soon.
Andy Gulliford was speaking at EG’s Radius Client Summit. For more on the event, click here.
To send feedback, e-mail damian.wild@egi.co.uk or tweet @DamianWild or @estatesgazette
