15th May 2014 07:31
LONDON (Alliance News) - Land Securities Group PLC Thursday said it doesn't expect any changes in the supply and demand balance in the London office market in the next two years, but warned that the costs of developing new buildings was rising and any new developments will require pre-lettings.
The real estate investment trust focused on the London office market and UK retail properties said a lack of resilient space for businesses in London bodes well for the developments it is currently committed to, as it reported strong growth in its net asset value and profit in its last financial year thanks to the strength of the central London office market.
The London office market has seen a large number of high-profile tall buildings coming on to the market in the last couple of years, with names or nicknames like The Shard, Cheesegrater and Walkie Talkie, but the overall addition of new space remains slow due to a lack of space to build on. Some of the new high-profile buildings have struggled to attract tenants quickly, although overall demand for office space in London remains high.
"Four years ago we anticipated the onset of supply-constrained conditions in the London offices market. That is exactly what we have seen. And, if anything, demand has been stronger than we signalled in our annual report last year," Land Securities said in a statement.
"The lead up to a general election is bound to bring an element of uncertainty to the business community. However, extraordinary events aside, we do not expect to see a correction of the balance between supply and demand in the London office market over the next two years. There is not enough efficient, technically resilient space for businesses and this bodes well for our committed speculative developments," it said.
"We will remain very busy in London as we press ahead with construction and de-risk the portfolio. We are confident about the prospects for our committed schemes. We also recognise that the risk profile of future speculative development is changing as competition for sites has increased, construction costs are rising, and development activity is set to pick up. As a result, any new development commitments in the near term are likely to require pre-lettings," it added.
The developer of buildings including the so-called Walkie Talkie in the City of London and a new scheme adjacent to Victoria Station said its pretax profit more than doubled to GBP1.11 billion in the year to March 31, from GBP533.0 million a year earlier, driven mainly by valuation gains on its portfolio.
It had a valuation surplus of GBP763.8 million, up from GBP217.5 million in the previous year.
Its net asset value per share rose to 1,069 pence, from 959 pence, or to 1,013 pence, from 903 pence, on an adjusted diluted basis. It said it will increase its final dividend to 7.9 pence, from 7.6p, bringing the total dividend to 30.7p, from 29.8p.
The company has done less well with its UK retail portfolio in recent years, as the economic downturn hit the retail market hard. It has been reshaping its portfolio, selling properties it doesn't expect to do well and buying up shopping centres its thinks will stay dominant in any area.
"In retail, a return to economic growth and real growth in wages is welcome news for retailers, but we still do not expect this to translate into rental growth across the entire retail market,2 the company said in its statement.
"We will continue to sell assets which are less well equipped for the future and focus on assets that offer a great experience or convenience. This includes our plans for new city centre schemes such as Oxford and edge-of-town schemes such as our proposals for Worcester which provide the right space for retailers," it added.
Land Securities shares were down 1.8% at 1,085 pence early Thursday, the biggest decline on the FTSE 100.
By Steve McGrath; [email protected]; @SteveMcGrath1
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