UK commercial property values stabilising despite offices drag, says British Land

UK commercial property values stabilising despite offices drag, says British Land

By Iain Withers and Aby Jose Koilparambil

LONDON (Reuters) -Landlord British Land said UK commercial property values have begun to stabilise after a torrid period for real estate investments, as it reported forecast-beating earnings on Wednesday.

Commercial property owners globally have been hit by emptier post-pandemic offices and soaring borrowing costs, squeezing many property investments and sending valuations tumbling.

But some UK landlords, including Land Securities, have said prime values are bottoming out.

British Land said the value of its property portfolio – which spans central London offices to retail parks across the UK – fell by 3% in the year to March 2024, to 8.7 billion pounds ($11.1 billion) from 9 billion pounds. However, the decline in the second half was just 0.2%.

“For the best quality assets, they’re in demand, values have stabilised or are growing,” British Land’s chief financial officer Bhavesh Mistry told Reuters, noting the value of its retail parks had been marked up 2.7%.

However, the value of the landlord’s ‘campus’ office complexes fell 5.3% over the year, although the rate slowed to 1.5% in the second half.

Mistry said more people were returning to British Land’s offices, with occupancy on Tuesdays-Thursdays up to or above pre-pandemic levels.

The company said it expects annual rental growth of 3% to 5% and reported underlying pre-tax profit of 268 million pounds for the year to March, ahead of analyst forecasts.

British Land shares were up 1.9% at 0852 GMT.

STRATEGY SHIFT

British Land has been repositioning its property portfolio in recent years by selling stakes in some London office complexes, such as at Euston and Paddington, and in shopping centres, including Sheffield’s Meadowhall.

The landlord said on Wednesday it would consider bringing in a new investor to its planned tower project in Broadgate, which recently secured a pre-let from U.S. hedge fund Citadel.

Offices are likely to take up a smaller proportion of British Land’s portfolio over the medium term, the company’s CEO Simon Carter said in an interview ahead of the results, dropping from about 60% currently to 50%.

British Land is recycling the capital raised into higher returning opportunities, including retail parks and new developments such as in London logistics, Mistry added.

Despite the drag on valuations from offices, British Land said demand for high-quality central London space was strong.

The City of London recorded its joint highest number of office leasing deals in a decade in 2023, with 331 transactions over 5,000 sq ft (465 sq m), according to Cushman & Wakefield research published last month.

“Clients have all reached this conclusion that they want quality and they want to be in the centre of town,” Carter said, adding the landlord’s central London offices were benefiting as demand waned for areas further out such as Canary Wharf.

British Land was “bullish” on prospects for retail parks, Mistry added, where the company is the UK’s largest direct owner and operator.

($1 = 0.7850 pounds)

(Reporting by Aby Jose Koilparambil in Bengaluru and Iain Withers in London; Editing by Krishna Chandra Eluri and Christina Fincher)