15th Nov 2016 11:29
LONDON (Alliance News) - Land Securities Group PLC on Tuesday warned of rising vacancy rates for London office space and increasing pressure on retailers noting "businesses find themselves in uncharted territory" after the Brexit vote.
Land Securities said it expects to see a "general weakening of net effective rental values" within both its London and Retail portfolios going forward.
The group signalled to occupational demand for London space dropping below the ten-year average in the first half of its financial year ended September 30 whilst supply increased, as well as the 4.2% decline in its retail park portfolio valuation over the six-month period.
The FTSE 100 commercial property investor said, since the referendum vote, it has seen early indications of revised policy priorities, including within public spending, housing and infrastructure, which could further impact the commercial property market.
However, it is currently the uncertainty which is having a "tangible effect" on the sector, the group said.
Occupational demand for office space in London has been hesitant and the vacancy rate has continued to rise, Land Securities said, noting it will "watch closely how this uncertainty affects development decisions and construction starts". For the London portfolio, voids are at 3.9%, rising from 2.9% in March, Land Securities said.
Meanwhile, within the retail property market, Land Securities said it expects consumer spending to be affected by growth in prices exceeding that of pay, which the group said will put increased pressure on retailers.
As a result of this uncertainty, Land Securities said real estate pricing has been affected and its external valuer has marked down its assets by 1.8% since March 31. On a total like-for-like portfolio basis, the valuation was marked down 2.4% due to outward yield shifts.
Land Securities, however, said whilst its portfolio was "not immune", for both its London and Retail assets it experienced "smaller falls than seen elsewhere in our market sectors" due management actions taken.
These actions have included positioning the group to have "historically low levels of speculative development and conservative financial gearing", which Land Securities said means it is now "well-placed to take advantage of any opportunities that may lie ahead".
At the end of its first half, Land Securities' loan-to-value ratio stood at 22.6%, up from 22% the prior year.
Land Securities recorded a valuation deficit of GBP259.6 million for the six month period, having seen a valuation surplus of GBP519.3 million the prior year. This caused it to swing to a pretax loss of GBP95.0 million compared to the GBP707.9 million pretax profit recorded a year earlier.
The group's net assets at September 30 came in at GBP11.45 billion, down from GBP11.70 billion at the end of March.
Land Securities said its total business return for the half-year to the end of September was negative 0.5%, with an ungeared total property return of positive 0.5%, slightly ahead of the benchmark IPD Quarterly Universe return of 0.2%.
Revenue profit grew to GBP192.5 million from GBP184.2 million the prior year, despite net rental income declining to GBP298.1 million from GBP304.8 million. This is because the group reduced its interest costs during the period, down to GBP78.7 million from GBP88.5 million the prior year.
Revenue profit is an underlying measure which strips out valuation movements and any profits or losses on the sale of investment properties, along with any one-off items.
Land Securities proposed an interim dividend of 17.90 pence per share, up 10% from 16.30p per share a year earlier, though Land Securities said this is a "reflection of last year's increase in total dividend driven by a significant rise in the final dividend".
However, Land Securities said it continues to make progress on its developments and the reinvestment of capital. The group has entered the final stage of its GBP2.40 billion development programme in London, and in the City and mid-town all schemes are now complete and fully let.
Meanwhile, Land Securities said it has reinvested the proceeds of the sale of its secondary assets within its Retail portfolio into "dominant destinations that attract retailers", with the latest example of this Westgate Oxford.
Shares in Land Securities were up 2.4% at 1,009.00 pence on Tuesday.
By Hannah Boland; [email protected]; @Hannaheboland
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