Why London’s commercial property sector is finally booming back
After a torrid few years, sentiment in London’s commercial property market appears to be improving.
On Thursday, one of London’s biggest landlord’s GPE said it would raise up to £350m to invest in new properties across London.
The firm announced the launch of a fully underwritten three-for-five rights issue to raise gross proceeds of approximately £350m – £336m net of expenses – through the issue of 152m new Shares at a price of 230 pence each.
A Rights Issue is where existing shareholders are given the opportunity to buy a set number of new shares in the company they own.
GPE, which owns, of over 30 properties across the West End and the City said it anticipates new office supply within London to tighten further “alongside a growing sustainability-led bifurcation, underpinning future rental growth”.
The move will help quash fears about the impact work from home practices had on London’s commercial property market after the pandemic.
Toby Courtauld, chief of GPE said: “We have seen a correction in asset values over the last 18 months with central London commercial real estate now trading in line with levels last seen in 2009 in real terms.”
Additionally a race to acquire ‘best in class’ office space which meets sustainability targets has led to increased competition in the market.
Some 94 per cent of stock set to return to the capital’s office market over the next three years has an EPC lower than C, and is therefore categorised as energy inefficient.
Under government regulations, office buildings must have an EPC rating of at least E before they can be granted a new lease or a lease renewal.
Analysts at Barclays said the £350m rights issue has sent a “strong, positive message about London offices”.
They said: “GPE raising equity to fund its developments is a strong signal given to the market that the London office market might have found a trough in values and opportunities to acquire and create value (which is their business model) are emerging, as the company has become a net buyer for the first time since 2013.”
Vacancy rates across the property firm estate have also sunk to just over one per cent.
However, smaller-listed office landlord Helical reported on the same day a 22 per cent like-for-like decline in property values in the year to March.
“Particularly if we continue to see higher office occupancy and businesses placing increasing importance on their office as a tool to attract talent,” it added.
Analysts at Morgan Stanely said:”For the London office landlords we expect March 2024 to be this cycle’s trough net asset value.
“With values stabilising and Landsec, British Land, and now Great Portland all guiding to strong rental growth, mid to high single digit total NAV based returns are achievable in the near future,”
Adding to this momentum, the West End’s biggest landlord Shaftesbury Capital said it signed 526 lease deals over the past 12 monts, accounting for £37m of rent, at 10 per cent ahead of the estimated rental value.
Earnings per share (EPS) were also up, leading to a jump in the dividend from 2.5p per share to 3.15p per share.
Ian Hawksworth, chief executive, said: “It’s been a positive start to the year, our West End estates are busy and vibrant with high footfall, customer sales growth and increasing levels of international tourism.
“There is continued strong leasing demand across all uses with 147 transactions completed in the period, at rents on average 7 per cent ahead of December 2023 ERV and an excellent leasing pipeline, reflecting the appeal of our exceptional portfolio.
He added:“We have completed £213m of asset sales since merger at a premium to valuation, reinvesting over £80m in target acquisitions.
“Backed by our strong balance sheet and talented team, Shaftesbury Capital is well-positioned to deliver growth in line with our medium-term targets as the leading central London mixed-use REIT.”