Property rebound benefits British Land

ONE of the UK's biggest landlords has booked the first full-year boost to the value of its portfolio since the property market collapsed, thanks to a rapid rebound in commercial property prices.

British Land, which owns half of Sheffield's Meadowhall shopping centre, said its net asset value for the year to the end of March surged 27 per cent to 504p.

The increase will be welcomed by taxpayer-backed Royal Bank of Scotland and Lloyds Banking Group, which hope to offload troublesome commercial property assets as they rebuild balance sheets.

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The value of the Meadowhall portfolio rose nine per cent to 1.271bn, compared with 1.165bn a year earlier.

"In a year of real volatility, we have performed well, reflecting the quality and strength of our portfolio and the actions we've undertaken to improve it," said chief executive Chris Grigg.

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

Over the year 28 long-term lettings were agreed at Meadowhall, lifting its occupancy level from 96 per cent to 98 per cent.

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The centre attracts almost 25m visitors a year and the group now plans to invest 20m in a 56,000sq ft extension to its Oasis food court.

In December it also bought a 50 per cent stake in a joint venture with Tesco, buying half of Clifton Moor retail park in York and Surrey Quays shopping centre in London.

British Land's stake in the 223,000sq ft Clifton Moor site was worth 39m at the end of March.

"In retail, we believe there will continue to be robust retailer demand for modern space in prime locations and we expect to see wide differences in performances between the best locations and less well-located secondary assets," said Mr Grigg.

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The company posted pre-tax profits of 1.13bn – up from a 3.9bn loss – as the value of the group's portfolio surged 13.5 per cent over the year to 8.5bn.

However, Mr Grigg warned the rapid bounce in values was likely to slow in the short-term.

"We continue to expect demand for prime real estate in the areas we are in to be strong both from investors and occupiers although we don't expect the degree of yield compression we have seen in the next six months," he said.

"The market has bounced very quickly ... and the process of recycling real estate out of the hands of what we call involuntary holders into longer-term hands has only just started. There's no need for us to do deals for the sake of it."

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While British Land had been expecting last year to throw up bargains from distress sales, these failed to materialise.

"In actual fact, the flow of investment opportunities during the year was limited, of generally disappointing quality and at prices which were difficult to justify," said Mr Grigg.

The group saw a 1.4 per cent like-for-like rise in annual rents. It will kickstart a 500m development drive in London as employment levels pick up.

The company plans to invest a further 232m in residential and office development at its Regent's Place scheme and restart plans to build the "Cheesegrater" skyscraper in Leadenhall Street in the City.

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It has also signed a non-binding agreement with Swiss bank UBS to build a new office near existing premises at Broadgate.

Stockbrokers Panmure Gordon upgraded the stock to "buy" from "hold" and upped its target price to 487p from 433p.

"We see this as an asset-backed business, with a strong balance sheet, and excellent turnover and profit visibility," said the broker in a note. "With volatility and uncertainty in the stock market at large, we see this as an excellent investment proposition at current levels."

Recovery fails to hold pace

New figures suggest the property market's recovery is running out of steam.

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The Investment Property Databank's (IPD) monthly index showed a 0.8 per cent rise in capital values in April, compared with a 1.6 per cent rise in March – a 10-month low.

The benchmark IPD data, used as the basis for UK's property derivatives market, also showed rents, for office, retail and industrial properties, fell by 0.2 per cent on average, marking two years of consecutive monthly rental declines.

Malcolm Hunt, head of UK client services, said: "The rapid bounce back in commercial property pricing at the end of last year has run its course, giving way to more sedate growth in recent months – indeed, the 80 basis points capital growth recorded for April was half that achieved in March."