The commercial property market may be approaching rock bottom as more workers return to their offices, according to Land Securities, one of the UK's largest landlords.
Mark Allan, chief executive of Land Securities, which has a portfolio worth billions, said high-quality property values “have pretty much bottomed out and will start to grow in the foreseeable future as rents rise”. He noted that the reset in values over the past two years, driven by rising interest rates, has stabilized, with evidence of continued rental growth attracting growing investor interest in the best assets.
Alan's comments came as the company announced an 18 per cent increase in the number of workers entering its office buildings. The return to office working, coupled with employers planning to provide more space per employee, is leading to “particularly strong demand for better-located, highly sustainable and well-equipped office space”.
The decline in the value of Landsec's office properties in London accounted for £449m of its total portfolio value of £625m last year, taking the value of its portfolio to £9.96bn. Offices and office development in central London make up around 60 per cent of Landsec's portfolio, with a further 20 per cent including shopping centers and retail outlets.
These cuts contributed to a pre-tax loss of £341m for the 12 months to the end of March, a smaller loss compared to the £622m loss on the previous year, thanks to higher rents and stable values in the second half. The company's net asset value per share fell from 936p to 859p, but it still increased its total dividend by 2.6 per cent to 39.6p per share.
Landsec, which owns landmark properties such as the Bluewater Shopping Center in Kent and the Dominion Theater in London's West End, is progressing towards its target of selling £4bn of “non-core” properties. It recently sold its remaining hotel portfolio to Los Angeles-based Ares Management for £400m, and plans to sell approximately £400m of retail parks and a small number of standalone London assets not located in its core areas. In the long term, Landsec aims to divest its “sub-scale” theme parks outside the city.
The proceeds from these disposals have provided Landsec with approximately £1 billion to invest in its development pipeline and other properties over the next 12 months. The company's other top priority is to invest in premium retail, driven by confidence in the performance of existing retail sites, where it sees “really attractive” returns.