Is confidence returning to the UK property market?
British Land’s portfolio has recovered, showing a tentative return to confidence in the UK property market.
British Land, the second largest property company in the UK, stated that its net asset value per share (which is how property companies measure performance) dropped 0.4% to 915p over the last year - less than the expected 6% drop some analysts have predicted.
The small fall shows valuers think demand has returned - at least in the commercial property quarter. The recovery is evident particularly over the last six months.
The figures were undoubtedly helped by the sale of London’s “Cheesegrater” skyscraper. British Land sold the landmark to a Chinese firm for £1.1bn.
The company’s chief executive Chris Grigg admitted uncertainty within the UK property market will continue, but said he was confident growth would gain pace.
“People are getting on with their business and letting space,” he said.
However, instead of continuing with construction projects on a speculative basis, the company is aiming to target buyers before striking ground. They’ll also be buying and developing retail parks and shopping centres, especially in areas poised for regneration.
Despite British Land’s upturn, analysts remain cautious about the potential for growth in the UK commercial property industry.
At Hargreaves Lansdown, equity analyst Nicholas Hyett said the slowdown of speculative development indicated that British Land was “clearly uncomfortable about the future”, and feeling that “there could be stormy weather ahead”.
London still “big draw”
British Land said the UK capital is just as desirable as ever to global banks and institutions, despite Brexit uncertainty.
“Looking forward, the picture is a mixed one,” said Grigg. “London occupiers, particularly financial institutions, are making contingency plans but there is a wide range of possible outcomes here. Our conversations with occupiers tell us that a large majority continue to value London and believe in its place as a global centre, as we do.”
Although businesses are taking longer to commit, and being more thorough with their due diligence, occupier and investor demand is increasing, he said. This is due to London’s reputation as a global leader.
“We expect London to continue as a leading global city reflecting its diverse pool of intellectual capital and reputation for innovation, as well as its culture, language and strong regulatory and legal framework.”
British Land’s portfolio fell by 1.4% last year to £13.9bn, but grew by 1.6% in the second half alone. Underlying profit rose by 7.4% to £390m.