Property owner keeps eye on effect of cuts

THE recovery in property values has slowed in recent months, said British Land, which is keeping a watchful eye on the impact of Government spending cuts.

The commercial property landlord, which owns half of Sheffield's Meadowhall shopping centre, said its net asset value increased 2.2 per cent to 515p a share in the three months to the end of June, down from 15.1 per cent growth in the previous quarter.

"Risks to the global economy seem to have increased in recent months and we remain alert to the potential impact of the fiscal measures needed to address budget deficits not only in the UK but across Europe," said chief executive Chris Grigg.

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After a 16 per cent increase in the previous two quarters, the value of its property portfolio grew by only 1.4 per cent over the three months.

The landlord said this was "as expected", and the total value of its properties owned or under management was 13.7bn, of which its share was 8.7bn.

Mr Grigg said there was no surprise in the slowing valuation growth, and said it should be seen in the context of the speedy recovery so far.

"Could they move more or less along these levels for a while? Yes they could. That is perfectly feasible," said Mr Grigg.

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"There are some advantages to that slight bumpiness because it is more, rather than less, likely in those situations that we will be able to find some bargains."

Figures from Investment Property Databank show average UK commercial property values have risen by just 1.8 per cent in the second quarter, after gaining 3.9 per cent in the first three months of 2010.

British Land did not update on the value of Meadowhall, which last stood at 1.271bn at the end of March.

The group sold half its stake in Meadowhall to London & Stamford Property last year to reduce its exposure to big single assets.

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Rental values in its retail portfolio were down 0.2 per cent overall, which was driven by a 0.9 per cent fall in shopping centre rent values.

The group said while rental activity was slower as occupiers became more wary about the outlook for consumer spending, "we continued to benefit from good demand from retailers for space in the right locations".

"The retail environment will continue to be tough, there is no real doubt in our minds that will be the case for the simple reason that growth in consumer spending looks pretty muted right now," said Mr Grigg.

But despite increasing concerns about the economy, the group's total occupancy rate increased by 1.2 per cent to 97.8 per cent, with around 400,000 sq ft of new lettings signed or under offer since March.

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The occupancy rate in its retail portfolio, which accounts for about two thirds of its total portfolio, slipped 0.3 per cent to 98.6 per cent.

But its rate of retailers in administration fell from 0.6 per cent of rent to 0.2 per cent.

The group said it continues to look for investment opportunities, "but quality assets at the right price remained scarce".

Underlying pre-tax profit was up 2m on the previous quarter at 64m.

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Office values gained by 2.4 per cent, boosted by a shortage of top quality space in London. British Land is talking to potential partners to build a skyscraper, nicknamed the Cheesegrater, in the City.

Retailers raise level of centre

Meadowhall has attracted three new retailers to bolster its high-end offer as it celebrates its 20th anniversary.

LK Bennett and Phase Eight have taken 1,603 sq ft and 1,448 sq ft stores respectively on the upper level of Park Lane, next to House of Fraser.

L'Occitane secured a 1,445 sq ft store on the upper High Street, alongside Apple, Monsoon and Zara.

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The new signings are part of a change in strategy at the Sheffield shopping centre, which saw sales rise by seven per cent last year to 750m in spite of the effects of the deep recession.

Meadowhall decided to target more high-end high street brands 18 months ago. In the last year 30 new retailers opened at the centre, including Firetrap, Lipsy and Hotel Chocolat.

At the time it was announced the three retailers were moving in Meadowhall centre director Darren Pearce said: "Meadowhall is like a department store for me. You have got to offer a range of different retailers that match up with the consumer profile of the area.

"High-end high street is an area that is slightly under-represented. We really wanted these brands and now we have got them."