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Commercial real estate values ​​poised for growth as office returns accelerate



Office for National Statistics

The commercial property market may be nearing its bottom as more workers return to the office, according to Land Securities, one of Britain’s largest landlords.

Mark Allan, CEO of Land Securities, which owns a portfolio worth billions, stated that high-end property values ​​“have largely bottomed out and will begin to grow in the near future as rental prices rise.” He noted that the value reset of the past two years, driven by rising interest rates, has stabilised, with indications that continued rental growth is increasing investor interest in the best assets.

Allan’s comments came as the company reported an 18 percent increase in the number of employees entering its office buildings. The return to office work, combined with employers planning to offer more space per employee, is driving “particularly strong demand for the best located, highly sustainable and well-equipped office space.”

Devaluations of Landsec’s office properties in London accounted for £449 million of the total £625 million write-down on the portfolio last year, taking the portfolio’s value to £9.96 billion. Offices and office developments in central London make up around 60 percent of Landsec’s portfolio, with a further 20 percent made up of shopping centers and retail.

These devaluations contributed to a pre-tax loss of £341 million for the 12 months ending March, a smaller loss compared to the previous year’s £622 million loss, thanks to rising rents and stable values ​​in the second half. The company’s net asset value per share fell from 936p to 859p, but it still increased its total dividend by 2.6 per cent to 39.6p per share.

Landsec, which owns notable properties such as the Bluewater shopping center in Kent and the Dominion Theater in London’s West End, is making progress towards its target of selling £4 billion of “non-core” properties. It recently sold its remaining hotel portfolio to Los Angeles-based Ares Management for £400m, and it plans to sell around £400m of retail parks and a small number of standalone London assets not in core areas . In the longer term, Landsec wants to divest its “sub-scale” recreational parks outside the city.

Proceeds from these disposals have provided Landsec with approximately £1 billion to invest in its development pipeline and other properties over the next twelve months. The company’s other top priority is investing in premium retail, driven by confidence in the performance of its existing retail locations, where it sees “really attractive” returns.