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Next year will bring buying opportunities in commercial real estate as the prices for good-quality property stabilise, one of the UK’s largest landlords has said.
Land Securities on Tuesday said the value of its £10bn portfolio, which includes shopping centres, urban developments and London offices, declined 3.6 per cent in the six months to September due to rising interest rates.
But with rates settling at higher levels, it believes property investment should pick up in 2024, after a challenging period when higher borrowing costs and fears about office demand have stalled dealmaking and slashed property values.
Landsec’s chief executive Mark Allan said that after selling £1.4bn of property at higher prices last year, the FTSE 100 group was well-placed to snap up “opportunities that will no doubt arise as the new higher-for-longer reality is now more widely accepted”.
Those sales last year were mainly large office buildings in the City of London, where the value of Landsec’s remaining buildings fell just over 9 per cent. Allan said “large corporate headquarters type space” was most at risk from declining office demand as companies shift to working from home.
Landsec said there was a clear split in the wider London office market. More than 80 per cent of London buildings are full, and 40 per cent of the vacant office space is found in just 1 per cent of the buildings, the company said. Most of the available space is in the City or Docklands area that includes Canary Wharf.
Among the roughly 25,000 people who work in Landsec offices in London, which are concentrated in Victoria, Southwark and the City, the landlord said 22 per cent more workers were coming into the office than last year.
The owner of the famous Piccadilly Lights said the proceeds from asset sales would help it to jump on buying opportunities next year as the market finds its feet. On top of its shopping list are “prime” shopping centres. Landsec said that after six years of falling retail rents, as the sector battled ecommerce, the rents it agreed with existing tenants rose 2 per cent. “In retail, we have turned that corner,” Allan said.
Even if the prices for in-demand properties stabilise in 2024, Allan expects “secondary assets where the sustainability of cash flow is questionable” will continue to drop.
However, he said there was a low risk of a wave of “disorderly sales” disrupting the market because there seemed to be enough “new equity and mezzanine finance to plug gaps in the capital stack”.