British Land cautious about near-term retail outlook
British Land says the 0.3% increase in its NAV during the past quarter to 593p and 6.3% growth in underlying pre-tax profit to £68m reflect the resilience of its business in a tougher economic environment. But in the near term, given the unresolved eurozone issues and the impact of austerity measures on UK consumer spending, it remains cautious about near-term prospects, particularly in the retail market.
The group, reporting on results for the third quarter of its business year, said it had secured pre-lets on unconditional contracts for more than 50% of its development programme of London office space, to lock in future annual rent of £32m per year. The programme is on schedule for delivery in 2014, it added. It also said that leasing activity had remained subdued in the offices market overall but that it had continued to see “encouraging” levels of activity across its offices portfolio, particularly in new developments.
In the retail sector, British Land said demand had remained strong during the quarter, with footfall across its UK retail portfolio up 3.3%, occupancy 20bp higher at 18.4% and 102 lettings or renewals agreed during the period covering 310,000 sq ft at an average of 7.5% above ERV. New developments include a 45,000 sq ft leisure extension at the Glasgow Fort retail park, where work is about to start on a cinema and five restaurants. Planning has been submitted for a major refurbishment and 100,000 sq ft extension to Surrey Quays shopping centre in London. Plans in preparation include an extension to Glasgow Fort; a large mixed-use, retail-led scheme in Luton; and a 70,000 sq ft retail development on land next to the Meadowhall centre in Sheffield.
The group confirmed an overall slowdown in investment market activity during the quarter, “reflecting the increase in economic uncertainty both in the UK and Europe”.
“Both the retail and office markets continue to polarise. While demand for the highest-quality income-generating assets remains, values of more secondary assets have started to slip with continued constraints in the debt markets for any but the strongest operators, further impacting demand,” it noted.