Landsec pins hopes on market improvement next year as City office values decline
Landsec has said it expects investment activity in the property sector to pick up next year, although transaction volumes currently remain “thin.”
In the six months to September, the commercial property giant, which has taken a cautious approach to asset management over the past two years, said EPRA NTA per share declined 4.6 per cent in the six months to the end of September to 893p per share.
As a result, while EPRA earnings grew 0.5 per cent to £198m thanks to “positive leasing, margin improvement and 2.8 per cent LFL income growth” the group reported a loss before tax of £193m after adjusting for lower property values.
It comes as the Bluewater shopping centre owner has been rolling out a plan to reduce its presence in London. It has sold £2.2bn of London offices, mainly in the City, at an average yield of 4.4 per cent since 2020.
After exiting its City portfolio, the firm’s London presence is now mainly focused around Victoria.
Landsec said it expected overall demand for UK office space to reduce as a result of more flexible ways of working.
“This would mostly impact large HQ type space and areas which lack the amenities to make people want to spend time there,” Landsec said.
“The fact that we have started to see several high-profile announcements of, for example, major banks reducing their floorspace and relocating to different parts of London therefore does not come as a surprise to us.”
The company has £6.6bn of central London property, with exposure to the City down to 24 per cent from 42 per cent three years ago. The value of its City offices fell 9.3 per cent in the period.
Mark Allan, chief executive of Landsec, said: “Investment activity remains thin, but we expect this to pick up in 2024, which should start to support values for the best assets.”
“The surge in inflation and interest rates since early last year has had a material impact on asset values globally, be it for real estate, equities or bonds, but positively, inflation has come down markedly from its recent highs.”
He added: “Still, we expect UK inflation to remain relatively sticky, so whilst interest rates may now be close to their peak, it seems optimistic to us to assume that they will come down sharply anytime soon.”