Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Prime UK office and shopping centre values are rising for the first time in two years, according to some of the UK’s largest listed landlords, in a positive sign for the embattled commercial real estate sector.
Land Securities on Friday reported that its near £10bn portfolio increased in value by 0.9 per cent in the six months to the end of September, the first rise since 2022, powered by improved valuations for its retail properties and prime London office buildings.
The news followed rival landlord GPE which on Thursday reported a 0.8 per cent rise in the valuation of its £2.5bn holdings of central London offices and shops.
Mark Allan, Landsec’s chief executive, said: “Six months ago we also said that we expected . . . values for the best assets to return to growth. This is what happened . . . Best-in-class space . . . remains in short supply [and] rents are growing.” The company’s shares were up around 2 per cent in early trading.
Commercial property values have suffered a brutal hit from the sharp rise in interest rates over the past two years, with asset prices across Europe falling by nearly a quarter on average, according to analysts at Green Street.
With central bank benchmark rates now falling and market borrowing costs more stable, rising rents for the most in-demand commercial properties are supporting a recovery in the value of these assets.
Property prices in the UK have corrected faster than in Europe and the US, according to consultancy Capital Economics.
“Shout it from the rooftops, CRE pricing has troughed,” said Kiran Raichura, its chief commercial real estate economist.
However, analysts have warned the recovery in commercial real estate is fragile and could suffer if debt costs rise.
Some property values are also expected to fall further, with older offices and shops in less popular locations struggling with limited demand. UK office vacancy rates are at their highest in a decade, according to data provider CoStar.
Landsec, which owns large office blocks around Victoria station in London and the majority of the Bluewater shopping centre in Kent, reported a 3.4 per cent increase in like-for-like net rental income and occupancy up slightly to 96.6 per cent. It upgraded its financial guidance for the next financial year to 50.1p earnings per share.
“Demand for modern, sustainable office space in London remains strong and in retail, brands continue to focus on fewer, but bigger and better stores in key locations. As supply of both is constrained, rents continue to increase,” Allan said.
GPE, which specialises in property in London’s West End, also benefited from strong rental growth but cautioned the recovery would be gradual. “Fundamentally the market has turned,” said chief financial and operating officer Nick Sanderson. “It doesn’t feel today like it will be V-shaped recovery.”