U.K.'s largest property developer says office tap-ins up 18%

By Louis Goss

Land Securities Group on Friday said higher interest rates knocked GBP625 million ($791 billion) off the value of its almost GBP10 billion property portfolio last year, but said it expects rising office occupancy rates will boost its business in 2024

The FTSE 100 company, which is Britain's biggest property developer, saw the value of its GBP6.2 billion central London portfolio drop by GBP449 million, as the value of its GBP1.2 billion City office portfolio fell by GBP188 million (-13.9%) and its GBP3.1 billion West End office portfolio fell by GBP111 million (-3.6%).

Landsec, however, said it expects rising office occupancy rates in prime areas of London will boost its business over the coming year, as it pointed to turnstile data showing tap-ins across its central London portfolio are up 18% compared to last year.

The property giant's results saw it perform in line with expectations, in generating earnings worth GBP371 million, down 5.6% year-on-year, compared to the GBP374 million forecast by 18 analysts polled by Landsec itself.

Shares in Land Securities Group (UK:LAND), listed on the London Stock Exchange, fell 3% on Friday having lost 5% of their value in 2024 to date.

London's office market has become increasingly concentrated in the most prime areas of the U.K.'s capital city since COVID-19 as top companies have sought out more desirable spaces to draw workers back in.

Landsec said it sold off GBP625 million worth of non-core assets last year as it reinvested the cash into Britain's "best-in-class real estate," in a shift that has concentrated around 80% its portfolio into just 12 key locations - including the London districts of Southwark and Victoria.

The London headquartered company said rising occupancy rates have already pushed up its rental income by 2.8% in the past year and the firm said its central London offices are now 97.3% full, up 140 basis points, driven partly by existing customers seeking out more space.

"Customer demand for our high-quality product has remained robust despite the unsettled political/economic backdrop, concerns about hybrid working and cost of living pressures for consumers," Landsec CEO Mark Allen said.

Analysts, however, warned that Landsec's predictions surrounding a boom in the London office market may be "optimistic."

"Company management have made some relatively optimistic statements this morning, noting that their outlook is more positive, and that 'high quality asset values have largely bottomed out'," Oli Creasey, property analyst at Quilter Cheviot, said.

"That is probably more-or-less true, but we worry it is a little too early to call the precise bottom of the market, particularly for Landsec, whose portfolio is around 50% in London offices and mixed-use urban developments - assets whose values fell most in 2024 (-6.5% / -14% respectively), and where the outlook remains cloudy," Creasey said.

-Louis Goss

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05-17-24 0900ET

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