Land Securities yesterday gave a resounding vote of confidence to London's commercial property market when it announced that it is to massively increase development in the City.
The UK Reit with largest exposure to London said yesterday that it has 110,000 square metres of developments under way in the capital, with a further 400,000 square metres of what it describes as "development and refurbishment opportunities".
In what will be interrupted as a sign that confidence has returned to London's property market, Land Securities' chief executive, Francis Salway, also confirmed that the group is back in talks with developers over the planned "Walkie Talkie" skyscraper at Fenchurch Street in the City. The ambitious 56-storey project, designed by the Rafael Viñoly, got planning permission in 2007 but was then mothballed owing to the crisis in the financial sector. Last year the projected completion date was pushed back by three years, to 2014.
Land Securities' ambitious new development plans come as the Government starts to outline how it will make inroads into the burgeoning fiscal deficit. The previous Labour administration argued that making cuts now would risk sending the economy into recession again.
"Our plans are predicated on a modest economic recovery. We are expecting sluggish economic growth," said Mr Salway.
"We've seen an improvement in the levels of interest from occupiers, and there is a real shortage of space. There are no new buildings going up in 2011 and 2012, and a couple of years after that there is likely to be a large number of businesses coming to the end of 25- year leases and looking for new space. There are structural reasons for us to be confident."
Analysts say that a strong start to the year in the property market is unlikely to be repeated in the second half, but that the shortage of supply in London will maintain growth for groups like Land Securities in the next few years. "We had a really strong first quarter, but we expect to see some of the heat coming out of the market – economic fundamentals do not support the rate of the return to growth we've seen so far," said Kevin McCauley, a director of research and consulting at CB Richard Ellis.
"We expect growth for the year to be positive on the strength of the first quarter, but the shortage of supply should also keep the market going for the next few years."
Land Securities' upbeat outlook was coupled by a return to profit. The group reported an annual pre-tax profit of £1.07bn to the end of March, against a £4.7bn loss in the previous 12 months. The results were helped by a 10 per cent rise in the value of its portfolio. Net asset value, a key property industry measurement, increased by 16.5 per cent, in line with analysts' expectations.
The company's results come a day after its rival British Land reported its first rise in net asset value for three years, saying that the value of its portfolio had climbed by 13.5 per cent.
London's mothballed skyline
* The "Cheese Grater" is British Land's vanity project at 122 Leadenhall Street in the City. Initially, the group said that it would be completed by 2011, but in August 2008 it announced that the project was on hold. British Land said on Tuesday that it is considering restarting the project and is "exploring interest from potential partners".
* Used by David Cameron to launch his election campaign, Battersea Power Station has seen many plans to return to its former glory fall by the wayside. The latest developer, Treasury Holdings, has had positive words from the Mayor, Boris Johnson, but will require an underground link that the Government, and company, are reluctant to pay for.
* The US investment bank JP Morgan has designs on making Riverside South in the Docklands its European headquarters, but it is yet to commit. The bank has said that it expects to make a decision on the project at some point this year. A source at JP Morgan rejected the idea that the bank was stalling on the project in protest against increased banking regulation.
* Heron Quays West, another Docklands project, is also stalled. Canary Wharf Group is continuing to develop the site but there is no date given on when the two-tower skyscraper is expected to be completed. The group concedes that there have been no serious expressions of interest in the project.Reuse content