Commercial property bounces back as workers and shoppers return

Warnings about ‘the death of the office’ as the pandemic struck were always exaggerated – and new figures show just how much life has been breathed back into the commercial property market.

British Land is back in profit after people returned to work over the summer once Covid restrictions were unwound.

It collected 100 per cent of office rents and saw the busiest period for leasing workplaces in a decade as businesses felt they could finally start making concrete plans for their future.

Signs of life: British Land is back into profit after people returned to work over the summer once Covid restrictions were unwound

British Land’s half-year numbers came a day after rival Land Securities also said it was back in the black, and a slew of other commercial landlords, such as Workspace Group, said they were seeing similar trends.

But the recovery has been divided, with shops and offices experiencing different rebounds.

In a sign that the turmoil in the retail industry has still not passed, House of Fraser announced it will shutter its iconic Oxford Street store for good in January.

It will follow in the footsteps of Debenhams and Topshop, two other stalwarts of the UK’s premier shopping streets which shut their doors for the last time because of the pandemic.

At almost exactly the same time this news was announced, US private equity giant KKR revealed it had snapped up two vast London buildings – one of which is on Tottenham Court Road – in deals worth £260million.

This division in fortunes for shops and offices can be seen in British Land’s results.

Colm Lauder, real estate analyst at Goodbody, said: ‘British Land and Land Securities are good proxies for the wider London economy. 

‘I think generally what we’re seeing is quite an upbeat tone in the UK and South East, and the London investment property market. We went into this week quite optimistic about what all these results would show, and we’re still positive.’

FTSE 100-listed British Land posted a £370million profit for the six months to September, up from a loss of £757million in the same period of 2020 when crippling lockdowns shut sites and deprived it of rent.

The value of its portfolio grew too, from £9.1billion in March to £9.8billion at the end of September. This is probably even higher now.

In the most recent six months, all office rents were paid and around 93 per cent of retail dues came in. 

The vast retail parks are still performing better than shopping centres, which are seeing fewer visitors as many office-based staff are still spending at least part of their week working from home.

But this could be set to change.

British Land boss Simon Carter said: ‘It’s been the busiest six-month period in the last ten years in terms of leasing activity on our London campuses.’

British Land, which traces its history back to the 1850s, owns a vast portfolio of properties that includes the Meadowhall shopping centre in Sheffield and campuses in mixed-use areas that have offices, retail, leisure and outdoors spaces and have big-name tenants such as Microsoft, Monzo and Prudential.

Many people believe that these types of areas, which British Land says are made with the ‘community’ in mind and are meant to promote wellbeing, are likely to be popular and fast-growing in the coming years.

British Land’s rival Land Securities recently snapped up a mixed-use developer called U&I for £190million.

The high-end campus developments also allow British Land, and others pursuing similar projects, to cater to the desire for green buildings. 

In a statement, Carter said that his company’s businesses were ‘focused more than ever on the highest quality, most sustainable workspace which we deliver at our campuses’.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: ‘Something that came out in the British Land report is an issue that comes up a lot now – whether people now want sustainable buildings. The vast majority say they are seeing a “green premium” with more sustainable buildings, or a “brown discount” on those that aren’t.

‘Either way, we are already seeing the sustainability feature become part of what defines somewhere as a prime property.’

As Lauder puts it, the overall trend in the commercial property market is one of ‘stabilisation’ rather than a full recovery.

The office market and developments in London are also being helped by the fact that the UK has left the EU after years of fretting about the impact of Brexit.

Lauder said that the market is on ‘more stable footing than it was at any point’ since the EU referendum left many firms in the lurch, unsure whether they should commit to building new towers or signing contracts for pricey office space without knowing the terms of the EU exit deal. Now, as the country is also emerging from the pandemic, post-Brexit certainty and the gradual return of normality are dovetailing.

Beyond the retail vs office gap, British Land’s results also reveal two other key trends. Warehouse space in urban areas is still seen as a valuable commodity.

And the company has spent £189million snapping up sites with the potential to be used as logistics hubs, including Finsbury Square car park in London.

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