UK’s Landsec swings to annual loss as property valuation drops

LAND Securities (Landsec) said on Tuesday (May 16) that it is likely to sell more assets than purchase, after the British landlord swung to an annual loss, as surging interest rates and broader economic woes weighed on the valuation of its properties.

Rising interest rates and deepening macroeconomic worries have dampened a tentative recovery in the highly leveraged British commercial property sector from pandemic lows, while the office space portfolio has struggled in the wake of evolving work habits.

The FTSE 100 firm said it expects low- to mid-single digit estimated rental value growth in London and major retail destinations this fiscal year.

It also marked down the value of its UK real estate portfolio by 7.7 per cent or £848 million (S$1.42 billion) last year, even as rents for its offices and stores rose. This brought its portfolio, which comprises office, retail, leisure, workspace and residential assets, to £10.2 billion.

Landsec said its loss before tax came in at £622 million for the year ended Mar 31, versus a profit of £875 million last year.

The British property sector is still reeling under the impact of the mini-budget last September, which led to a rout of government bonds and pushed borrowing costs higher. Landlords are grappling with such sharply higher costs, which have begun to feed through to property prices, ending more than a decade of cheap money that inflated asset values. Meanwhile, the recent US banking turmoil and the Credit Suisse crisis have led to tougher lending conditions worldwide.

Still, demand for the best-quality green office space is outstripping supply after years of muted construction levels, supporting higher rents for the type of new buildings developed by Landsec. 

The firm added that its European Public Real Estate Association net tangible assets – a key measure that gauges the value of its buildings – fell about 12 per cent to £9.36 per share.

In an interview with Bloomberg Television, Landsec chief executive officer Mark Allan said: “In the last six months we’ve seen rates rise more rapidly than rents have been able to, and so the pressure has been downwards on values.

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“It feels much more finely balanced now, but investment markets are still relatively thin in terms of transactions.”