The actual property business faces “a ‘greater for longer’ rate of interest atmosphere”, the chief of considered one of Britain’s largest landlords has warned, as the worth of its portfolio dropped.
Landsec chief govt Mark Allan stated on Tuesday {that a} decade of ultra-low rates of interest had been an “aberration” and property traders shouldn’t “hope that markets will simply ‘return to regular’ and rates of interest come again down sharply if we wait lengthy sufficient”.
The drop within the worth of Landsec’s portfolio was led by Metropolis of London workplaces, which fell 15 per cent within the yr. West Finish workplaces, which embody the corporate’s massive holdings round Victoria station, slipped 8 per cent.
The group swung to a £622mn pre-tax loss within the yr to the top of March as the general worth of its £10.2bn portfolio of largely workplace and retail property declined 7.7 per cent.
Business property values and dealmaking have slumped in latest months because the market has reckoned with the fallout from the UK’s autumn “mini-Funds”, an financial slowdown and quickly rising debt prices.
The adjustment to greater debt prices has been painful for a industrial property sector that depends closely on borrowing. Allan stated that some traders had overindulged in super-cheap debt. “These enterprise fashions the place you might borrow cheaply and pay extra for an asset . . . these occasions I feel are very clearly behind us,” he added.
Regardless of the autumn within the worth of Landsec’s portfolio, Colm Lauder, analyst at Goodbody, stated the group was a “notable outperformer” towards a mean drop of 19 per cent throughout UK portfolios.
Landsec has stated the general demand for workplaces will shrink post-Covid. The discount might be as a lot as 20 per cent for “typical” workplace area in “large headquarters-type buildings”, Allan stated.
Nevertheless, the corporate reported sturdy demand for the high-end, energy-efficient buildings it owns. Increased development and debt prices will in all probability imply builders received’t construct sufficient of these fascinating buildings in central places over the approaching years, Allan stated. Tenants are sometimes adopting a “lengthy four-day week” and are planning for the “most area they want, not the common area”, he added.
Landsec reported 6 per cent development in like-for-like web rental revenue. Earnings per share, adjusted to take out valuation modifications and a few one-off gadgets, rose 4.4 per cent. “Regardless of the difficult, however largely anticipated, valuation efficiency, [Landsec] continued to display the solidity of its money flows,” stated Numis analyst Max Nimmo.
The corporate bought £1.4bn of largely Metropolis workplaces throughout the yr, together with Deloitte’s workplace at One New Road Sq., because it sought to cut back debt and unencumber money for brand new investments. Allan stated the corporate had extra to promote, however would in all probability “be turning purchaser” by the top of the yr.