Land Securities heralds end of property slump

The UK's biggest commercial property group, Land Securities, gave the industry a fillip yesterday when it signalled an end to the slump which has blighted the sector for more than a year.

The real estate investment trust said that adjusted net asset value, the key measurement of success in the industry, had fallen by 4.7 per cent in the first six months of the year to 565p, a better performance than the market had expected. Land Securities' numbers follow a number of upbeat statements by commercial property groups in the last few weeks – yesterday its biggest rival, British Land, said that its NAV had increased by 3.1 per cent to 372p a share in the second quarter.

"If you looked at our valuations every quarter, we would certainly be in positive territory by now," said Land Securities' chief executive, Francis Salway. "We have got our gearing down to where we wanted it, at a ratio of 50 per cent loan to value, maintained our double-A credit rating and stretched out the average duration of our debt from 10 to 12 years."

The recovery is a remarkable turnaround for the sector, which struggled at the height of the banking crisis as financial institutions pared back lending and companies put expansion plans on hold. The respected Investment Property Databank's monthly index of commercial property values rose for a third straight month in October. The jump of 1.9 per cent came after the index grew 1.1 per cent in September.

"Right now there are more buyers than sellers in the property market, and irrespective of any clever analysis, that will lead to strengthening prices," said Mr Salway. "The increases will not be in a straight line, there will be ripples along the way, but we are increasingly confident."

Despite falling yesterday, Land Securities' shares have been among the biggest climbers in the last six months, gaining more than 50 per cent.

Despite the more confident noises from the sector, a number of analysts have expressed concerns that parts of the commercial property markets are still soft. "The rental market remains challenging and although voids reduced to 2.1 per cent, this has been helped by significantly discounted short-term leases," said Andrew Saunders, a property market analyst at Panmure Gordon. "It is still too early to call a recovery here, particularly as the UK economy remains fragile, the key Christmas retail period still lies ahead and the London City office market remains over-supplied."