Custodian confident as new rent rockets

Strong leasing activity has regional investor Custodian Property Income REIT confident that recovery is around the corner. The group, which in March was forced to abandon a merger with Abrdn Property Income Trust after failing to get shareholder approva, said it was seeing strong rental growth, which gave it confidence in the reversionary potential across its portfolio. In the three months ended 31 March, like-for-like ERV increased by 0.8%, with portfolio ERV (£49.4m) exceeding passing rent (£43.1m) by 15%. Like-for-like passing rent increased by 1.7% during the quarter, said Custodian, driven by resilient occupier demand for space across all sectors of its portfolio. It added that three rent reviews had been settled during the quarter at an average of 7% ahead of ERV and 29% above previous passing rent. The group cited Willow Court in Oxford as an example of strong rental growth potential across the portfolio. The office building was acquired in 2020 when the ground-floor suite was let at a rent reflecting £26.50 per sq ft. A letting agreed in March 2024, expected to complete soon, has been agreed at a rent of £42 per sq ft. In Atherstone in the West Midlands, two refurbished industrial units have been let at £10.50 per sq ft, well ahead of the previous rent of £6.50 per sq ft. Despite the increases in rent, the valuation of Custodian’s 155-asset portfolio remained flat at £589.1m. Looking ahead, the group said it remained confident this year would be a year of recovery. It said: “2024 began with greater confidence in the market than at the close of 2023. Much of this confidence was rooted in an expectation of falling interest rates and an acknowledgement that, in many sectors of the property market, valuations had adjusted sufficiently to reflect investor sentiment. “However, the early part of the year witnessed an increase in the five year swap rate, and a hiatus in the improving inflation statistics. “These factors may have delayed a recovery, but a recovery is still expected later this year as inflation settles and interest rate decreases follow.”