Forget shining skyscrapers, gleaming office blocks or swanky shopping centres; in commercial property, big sheds are where it’s at. Warehouses may not be sexy, but they’ve proved extremely lucrative in the surging world of e-commerce.
Most consumers won’t have heard of Segro, but it will have touched their lives. Items they use every day may have passed through its warehouses: vast landmarks of an online boom that has made it Britain’s most valuable property company.
“We get everyday things. That could be a coffee cup, or it could be something you’ve downloaded on your phone that’s gone through a data centre,” says David Sleath, Segro’s chief executive, seated in a boardroom at the company’s Mayfair head office behind Regent Street. “We create the space to enable extraordinary things to happen,” he adds, without a hint of irony.
There is indeed something extraordinary about Segro’s rocketing trajectory, from its humble roots as Slough Estates Group to a £17bn behemoth in the top third of the FTSE 100. What was once an uninspiring property firm with a disparate bunch of assets including office blocks and a US golf course has become a serious player.
That elevated status can be traced back to Sleath’s decision to bet big on warehouses and industrial property when he took the helm a decade ago. During his tenure, the company has ridden the wave of online retail to overtake competitors with higher-profile assets, such as Land Securities and its Bluewater shopping complex in Kent.
Few would have put money on Segro climbing to where it is today; nor, perhaps, would Sleath have himself. The affable 60-year-old was initially something of a reluctant boss, and unsure whether he wanted to step up after five years as finance director. “I didn’t necessarily see myself as a natural chief executive,” he says. One of the aspects of running a company which didn’t appeal was newspaper interviews, he laughs.
“I thought there’s a good business in here, trying to get out,” he recalls. “The company had a decent-sized portfolio, but was struggling to work out: where did it want to go?”
The glass and polished-wood Mayfair office, with meeting rooms named after innovators including Turing and Newton, feels a world away from the colossal grey cathedrals of consumerism that have sprouted along Britain’s main roads over the past two decades. Segro has been responsible for developing and renting warehouses to the likes of Amazon and Netflix.
A fan of Mark Twain, Sleath quotes the writer’s maxim “buy land – they’re not making it any more”, and has taken it to heart. Segro owns and manages 8.8m square metres of space – the equivalent of an area three times the City of London. It has another £1bn of land that it has yet to develop. Logistics, he says, is “unseen, unnoticed”, but its smooth functioning is vital, as the supply chain crisis has shown.
Ten years ago, when Sleath took over, many had their doubts about his plan to concentrate on the industrial properties needed for e-commerce. Was it luck or design?
“I’d love to be able to say that even in 2011, when we launched the strategy, we could see exactly what was going to happen to Amazon and how it was going to become a major driver of e-commerce and demand for warehousing space,” Sleath says. “But the truth of the matter is, while we had all probably bought some things on Amazon and were aware of them, as Segro we hadn’t done much business with them, and didn’t really see them as a major player in our core markets. At that point they were mostly building very big warehouses in quite remote locations where labour and land were cheap.”
Slough, Segro’s humble birthplace on the western edge of London – a location where the Mars bar was invented, and more recently the setting for the TV series The Office – befits Sleath’s self-effacing manner. He labels himself “an accountant”, but is well regarded in the property industry, according to analysts. Segro remains the owner of the estate where it all started – now the largest privately owned business park in Europe, home to tenants such as DHL, Ferrari and O2. Not bad for a firm once nicknamed “slow grow” by City wags.
Sleath was educated at a Swansea comprehensive after his father moved the family from England to work at the local Ford plant. No trace of a Welsh accent remains, although a love of rugby does, albeit supporting England. After studying accountancy at the University of Warwick, he spent 17 years working as an accountant at Arthur Andersen, before moving to become finance director of engineering firm Wagon. He has built a considerable fortune off Segro’s boom: his shares and options are worth more than £21m.
Segro’s latest plans include multi-storey warehouses. Critics argue that soulless sheds do little for the British countryside, and have exacerbated the the nation’s high street’s decline and a throwaway consumer culture. Sleath is unconvinced. “Ultimately the consumer decides what gets built and what’s required,” he says. “What we are doing is trying to facilitate that: we’re very thoughtful about what we build and where we build it.”
Demand for logistics hubs was already booming before the pandemic, but since Covid, space has never been at such a premium. Shipping delays and broken supply chains have seen companies calling up asking for extra warehousing so they can store more stock close to their factories and shops. Fears of a disorderly Brexit amplified that demand.
In the past few months, transactions were agreed for about 1.2m square metres of UK warehousing lettings, according to Jonathan de Mello, a partner at independent retail property consultancy CWM. This represents 80% of the space rented out in the whole of 2020, and he reports London remains especially sought-after.
Meanwhile analysts at stockbroker Liberum reported in the summer that availability of warehouse space was at the lowest level ever recorded.
It’s not just retailers who are on the hunt for warehouses, Sleath says: “We’ve got lots of last mile delivery facilities and parcel hubs. But we’ve also got food preparation companies, we’ve got media companies that are storing their theatre production equipment.”
Many of the goods ordered online for Black Friday may well pass through Segro’s warehouses at some point on their way to shoppers, who will mostly remain oblivious to its existence.
Not that this matters to Sleath, who doesn’t mind his – or his company’s – lack of profile, as he utters a maxim fitting of any accountant. “I quite like flying under the radar, to be quite honest: I think, ‘Let the numbers do the talking’.”