British Land boss says prime London office values close to the bottom

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The values of prime London offices are “close to the bottom” after a brutal year for commercial property investors, according to the head of one of the UK’s largest landlords.

British Land boss Simon Carter said the value of good-quality London offices should stabilise after sharp falls in recent months, but warned of more pain to come for less desirable buildings.

“In London offices, I think we are close to the bottom now for those, and in particular for our portfolio,” he said. “You will see secondary office values continue to decline.” 

The FTSE 100 group on Wednesday reported a 12 per cent annual fall in the value of its £9bn portfolio, which includes major holdings around Broadgate in the City of London and Paddington. Values of its properties in the City dropped almost 15 per cent in the year to the end of March.

The valuation decline drove British Land to a £1bn pre-tax loss, down from a more than £900mn profit the year before. The group’s underlying profit, which omits property valuation swings, rose almost 7 per cent from the year before to £264mn, and like-for-like net rental income increased 6 per cent.

Carter said the hit to property values reflected the sharp rise in interest rates this year, as central banks try to control inflation. He expects the value of British Land’s portfolio to stabilise, or even improve in some sectors, supported by rising rents and strong demand for modern, well-located space.

British Land agreed new leases for 3.4mn sq ft of space in the year, at rents 15 per cent higher than the estimated rental value at the start of the financial year. Carter said the company’s retail parks, in particular, should increase in value, with occupancy at the highest level in 15 years at 99 per cent and rents rising for the first time in four years.

Rival FTSE 100 landlord Landsec on Tuesday reported a smaller drop of about 8 per cent in property values. Colm Lauder, analyst at Goodbody, said “most sectors and property types within both portfolios” had reached “a level at which we see prime assets, particularly London offices and logistics, bottoming out.” 

“However, with transactional evidence still so thin in the UK market, we will need increased deal flow to confirm these trends,” he added.