Property values may still be under a cloud but 22% growth in rents at Warehouse Reit (WHR ) shows that occupational demand remained strong, providing hope for improved dividend cover.

Capital values of UK commercial real estate have taken a battering from inflation and higher interest rates which have also stifled new developments, but boosted demand from tenants competing for space in a constrained market.

Proof of this has been delivered by Warehouse Reit, the £349m investor in urban and ‘last-mile’ industrial logistics assets, which increased rents substantially in the final three months of 2023.

In a leasing update, the Tilstone Partners-managed real estate investment trust (Reit) reported the leasing of 900,000 square feet of space, securing £5.2m of contracted rent, which was on average 22.1% ahead of the previous period.

A total of 15 new lettings were signed at rents 33.2% higher than previously paid, another 16 renewals were made at 38.2% ahead of previous contracted rents, and six rent reviews yielded new rental deals 13.7% ahead of previous rents.

The deals included a new lease with a UK logistics business in Milton Keynes, generating rent of £97,000. A renewal to a thermoplastics business in Warrington sealed a new rent of £498,000 a year, which is 42.3% ahead of the previous contract, while another renewal with a tile business in Chorley for rent of £320,000 marked a 22.7% increase.

Tilstone’s Simon Hope, who co-manages the trust, said: ‘This pace of activity demonstrates that the market for affordable, well-located multi-let industrial space is holding up well.

‘Deals have been agreed well ahead of prior rents and the portfolio is successfully appealing to more higher value occupiers from a wide variety of sectors.’

The manager is no doubt hoping the increased rents will improve its dividend cover, which has fallen short in recent years.

Deutsche Numis investment companies analyst Andrew Rees said ‘top line rental income growth will help to grow dividend cover from 0.7x in the first half’.

‘We expect the next key update that shareholders will be waiting for is news on the planned disposal of Radway Green development asset,’ Rees said.

‘Although it will have been a disappointment for management to not be progressing the potentially attractive development opportunity through to completion on balance sheet, a successful disposal has the potential to be both net asset value and earnings accretive, while reducing leverage and allowing the company to focus on its multi-let strategy.’

At the end of last year, the trust put its Radway Green logistics development in Crewe up for sale as it does not want to fund its completion alone, and will instead use the proceeds to pay down debt and rebuild the dividend cover.