Great Portland Estates (GPE) is urging shareholders to support a £350m fundraising initiative to capitalize on what it sees as the bottoming out of the commercial property market.
The funds will be used to purchase and develop further office space in London, and take opportunities to purchase high-quality assets at discounted prices.
Over the past year, the value of GPE's office portfolio has fallen by 12 per cent to £2.3bn. However, CEO Toby Courtauld is optimistic that the market has stabilized. “Inflation, interest rates and political uncertainty have all been impediments to growth, but rents are now increasing and property yields have largely stabilized,” Courtauld noted. He stressed that the current circumstances represent a rare opportunity to obtain valuable assets at a discounted price.
The Global Partnership for Education has identified nearly £1.4 billion of “end-of-life” buildings that could be refurbished or redeveloped. To finance these projects, the company proposed a rights issue, offering new shares at 230 pence per share, roughly half its last trading price. Despite this discount, GPE shares fell 1.3 per cent, closing at 417p.
As one of Central London's leading office developers and landlords, GPE has a history of strategic acquisitions, particularly during market downturns. Following the 2008 financial crisis, the company embarked on a major buyout worth £300 million raised from investors. Courtauld stressed that current market conditions differ from 2009, with clearer expectations for rental growth. GPE rents rose by 3.8 per cent last year, and the company expects a further increase of up to 10 per cent for Grade A London offices over the next year.
Courtauld rejected the idea that offices were becoming obsolete, pointing to the growing demand for high-quality office space. Companies are willing to pay a premium for modern, well-equipped offices, a trend that leasing agents call the “flight to quality.” The Global Partnership for Education aims to meet this demand by converting older, less sustainable buildings into modern, environmentally friendly offices.
Nick Sanderson, GPE's CFO, echoed this sentiment, saying: “Buildings with poor sustainability credentials today will become best-in-class once we invest in them. This transformation is critical to attracting businesses and their employees alike.
Despite strong growth in rents, a significant fall in property values resulted in a pre-tax loss of £307.8 million for the year to the end of March, almost double the previous year's loss of £163.9 million. Excluding valuation changes, operating profit remained flat at £19.7m. GPE maintained its final dividend at 7.9 pence per share, payable in July.
With the London office market showing signs of recovery, GPE's strategic investments and commitment to providing high-quality office space puts it well placed to capitalize on the expected improvement.