Kepler Cheuvreux has upgraded real estate investment trust SEGRO to 'buy' from 'hold', lifting its target price by nearly 30% in a move that underscores growing confidence in the UK logistics sector. The brokerage's revised stance reflects expectations of sustained rental growth and high occupancy rates across SEGRO's portfolio of warehouses and distribution centres.
The upgrade came on a day when the FTSE 100 edged higher, rising 0.3% to 8,215 points, with SEGRO among the top gainers. Shares in the company climbed 2.1% in early trading, outperforming the broader property sector. The FTSE 250, which contains more domestically focused stocks, added 0.4% to 20,540 points.
Analysts at Kepler pointed to the structural shift towards e-commerce and the ongoing reshoring of supply chains as tailwinds for SEGRO's business. 'The demand for modern, well-located logistics space remains strong, and SEGRO is well-positioned to capture that growth,' they wrote in a note to clients. The company's focus on urban and 'big box' warehouses has made it a bellwether for the industrial property market.
The upgrade comes amid a mixed picture for UK commercial property. While office and retail spaces continue to face headwinds from hybrid working and changing consumer habits, the logistics sub-sector has remained resilient. SEGRO's portfolio, concentrated in key transport hubs such as London, the Midlands and the South East, has benefited from tight supply and rising rents.
For UK investors and pension holders with exposure to property funds, the upgrade may signal that logistics-focused REITs offer a relatively defensive income stream in a period of elevated interest rates. However, analysts caution that the sector is not immune to economic slowdown, and rental growth could moderate if consumer spending weakens.
Kepler's move follows a series of positive updates from SEGRO, including a recent trading statement that highlighted strong leasing activity and a healthy development pipeline. The company is due to report half-year results in early August, which will provide further clarity on the outlook for occupancy and rental income.