Land Securities has reported record office leasing in London as the lifting of Covid restrictions fuels a return of workers and a surge in demand for prime space, as the property company bounced back to profit last year.
Landsec is one of Britain’s biggest property firms and about 60% of its portfolio is in central London. It reported a pre-tax profit of £875m in the year to the end of March.
The company, which owns offices such as Deutsche Bank’s London headquarters and an office complex near St Paul’s Cathedral, reported a loss of £1.4bn the previous year as the coronavirus pandemic shut down offices across the UK.
“Reports of the demise of office working may have been premature, judging by a return to profit for Land Securities,” said Russ Mould, the investment director at AJ Bell. “Astonishingly in central London the company is seeing record leasing levels. In a competitive jobs market where employers probably want their staff in the office at least some of the time, attractive locations with flexible space are a must.”
Landsec said it intends to cash in on the post-pandemic office space boom by investing £3bn in “sustainable London offices and mixed use development” over the next five years.
The company said that it struck a record £63m of office leases in the past year, on average 4% ahead of valuers’ assumptions. Landsec said office occupancy across its portfolio reached 95.3%, “demonstrating strong demand for high-quality space”.
Landsec’s shopping mall portfolio, which includes Bluewater in Kent and Trinity Leeds, also experienced a return to growth in the second half of its financial year.
Like-for-like retail sales were 1.1% ahead of its 2019/20 financial year and occupancy rose 1.7 percentage points to 93.2%, as retailers hoped to take advantage of shoppers returning to malls. Landsec, which paid £126m for an additional 18.75% stake in Bluewater and £426m for a 75% stake in MediaCityUK in Greater Manchester during the year, said that it signed, or is processing, £29m of lettings deals for retail space.
“There has been a recovery in Landsec’s retail locations too as restrictions ease, with the landlord putting effort in making these attractive destinations for shoppers,” Mould said. “Occupancy rates are also up – though this recovery could be cut short as households cut back on spending amid cost of living pressures.”
Landsec’s portfolio of offices and shops increased in value by 11% year on year, from £10.8bn to £12bn.
“Landsec has delivered strong operational and financial results despite the turbulence within the UK economy,” the LandSec chief executive, Mark Allan, said. “The actions we have taken, driven by our strategic focus on three distinct areas have resulted in record leasing in our London office portfolio, a return to growth in our major retail destinations and clear, substantive progress in growing our mixed-use urban neighbourhood portfolio.”
Landsec hopes to sell 21 Moorfields, Deutsche Bank’s new City of London offices, for about £1bn and Allan said that sale is one of “three or four” London office disposals he is considering.
“We continue to recycle capital out of mature assets, while our pipeline now offers the opportunity to invest £3bn in sustainable London offices and mixed-use development over the next five years at attractive returns,” he said.