Logistics has been one of your favoured sectors for some time, why is this, and do you see any headwinds for the sector right now?

Logistics is the sector we like, for the tailwinds, as much as anything. We see strong growth drivers and solid demand. Supply is fundamentally constrained by land requirements, the planning system, construction costs, and build times – pressures that are tightening. At the same time, obsolescence is rising, and new occupiers want purpose-built facilities, meaning a long tail of secondary or tertiary space is becoming unfit for many users. We like all these factors.

There are always headwinds, right? The rising cost of debt has been a significant challenge in recent times but that is not just an industrial issue, it’s a property issue. The biggest headwind right now is the shortage of investable assets. Stock is scarce, and when it does come up, there is competition from a range of investors, particularly the PE platforms.

Tariffs are another factor. Global trade barriers can be disruptive, though they also provide opportunities through onshoring and stockpiling. We’ve seen benefits from Freeports, like our site outside Felixstowe, where bonded status allows goods to be imported and stored without immediate tax.

So, while it’s something to be mindful of, there are also opportunities in the tariff structure. That said, you can’t plan around tariffs – especially with the unpredictability we’ve seen under Trump.

From your perspective, what is the key driver investors prioritise when evaluating a new opportunity?

Our criteria focuses on four key factors: building quality, location, lease length, and tenant credit. If at least three out of these four requirements are strong, we will likely review it.

But we won’t pursue an asset just because it’s an exceptional building if the other fundamentals don’t stack up. Our priority is delivering an accretive income return to support dividend payments and enable progressive growth.

Expiring income gaps are a major issue for us, far more than for those using a total return model. Lease length and tenant strength are critical. We may even invest in weaker locations or lower-quality buildings if there’s a long lease with strong credit.

Things become a little more complex when evaluating brand-new, high-quality urban logistics assets in an excellent location. In such cases, we may take a calculated view.

Do you expect recent strong rental growth to continue, and if so, what factors are driving it?

Rental growth has slowed at a macro level, but there are still pockets of strong growth driven by supply-demand imbalances in specific areas. Finding the right opportunities now simply requires careful selection of submarkets and asset types.

Rental growth across the industrial sector has slowed to around 2-3% annually. Brand new Grade A stock is seeing much stronger growth; however, it’s the older secondary stock that is lagging – creating one of the widest rental gaps between prime and secondary assets.

There is growing alignment between occupiers and investors in targeting high-quality, prime assets, underpinned by common ESG and net-zero commitments.

The strongest rental growth is in pre-let, D&B space. Large bespoke requirements can’t be met with off-the-shelf options; these facilities must be purpose-built. Developers, having been hit by land value erosion and yield compression, are recouping losses through the only means possible: pushing higher rents. 

How much is the ESG agenda driving more frequent refurbishments? Is it raising specification standards in older properties, and are investors having to factor in higher CapEx as a result?

For older stock, a key issue is accurately assessing CapEx requirements. Historically, investors underestimated these costs relative to current cash flow modelling. This underestimation has led some to adopt more robust acquisition due diligence processes to better evaluate potential future CapEx exposure.

For older buildings, like those from the 1970s with asbestos roofs, refurbishment is often a one-time investment. Once the roof is replaced, the EPC improved and LED lighting installed, there’s little left to upgrade. Unlike offices, which often require major upgrades every decade, once modernised, industrial buildings tend to stay functional for years – it’s not like painting the Forth Bridge and having to start over every few years!

A challenge has been the gap between rent growth and CapEx investment. With rents rising regardless of upgrades, many landlords have avoided disrupting that cycle – strong demand has allowed this, but it can’t last forever.

With potential interest rate cuts forecast later in 2025, how do you see this impacting investor appetite and pricing expectations?

Capital is available, and there’s significant demand in the logistics space. The key difference is that buyers could likely absorb slightly higher pricing as interest rates adjust – rates come down, margins remain steady, and pricing naturally follows suit – that’s just basic financial mechanics. The real issue is liquidity on the vendor side. Sellers need to see interest rates stabilise before their pricing expectations align with market realities, right now, that mismatch is creating a roadblock.

Ultimately, as interest rates shift, pricing will likely settle at a level more acceptable to vendors, helping to break the current deadlock.

With the Landlord & Tenant ’54 Act not applying in Scotland, does this have a meaningful impact on investing in Scotland, particularly for shorter lease opportunities?

Absolutely, it should – but we tend to be cautious investors, particularly around potential income gaps. We rarely let an asset reach the end of a lease without securing an extension, as the risk of vacancy is unsettling for us.

Typically, we renew leases early, removing the need for Section 54 protection across our portfolio. Where early renewal isn’t possible, we aim to sell with sufficient lease term remaining to maintain liquidity. In recent years, sub-five-year lease terms have worked well, giving buyers greater access to rental reversion.

Some investors take the opposite view: allowing leases to run close to expiry, staring down tenants, then negotiating to extract maximum reversion. We don’t have that luxury, with portfolio occupancy at 99.9%, even a 2% vacancy would materially impact earnings. That’s why minimising lease gaps is critical to our model.

So, while we are now more comfortable investing in Scotland, the lack of the ’54 Act is not the primary driver for stock selection.