UBS has downgraded SEGRO PLC (LSE:SGRO) from a buy to a neutral rating due to a weaker outlook for logistics rental growth.
As such, the bank has revised down its estimates for future rental growth in Segro's logistics sector, a key component of the company's business.
UBS now expects rental growth of 3% in 2024, 3.5% in 2025, and 4% thereafter, significantly lower than its previous forecasts.
Key metrics from Segro's first-half performance showed a slowdown in growth, with ERV (Estimated Rental Value) growth coming in at just 1.4%, a drop from 3.7% in the first half of 2023.
Additionally, UBS highlighted that the company's portfolio vacancy rate has risen to the highest level since 2016, further signalling softening demand in the market.
Compounding the weaker rental growth outlook, Segro has also reduced its capital expenditure (capex) by £100 million for the second consecutive year, which is expected to impact future development and expansion opportunities.
As a result of these factors, UBS has lowered its price target for Segro by 6%, from 1,045p to 985p.