Land Securities signals signs of stabilisation led by London

Property giant starts to eye acquisitions after hiatus
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The property giant Land Securities yesterday signalled signs of stabilisation in the commercial property market after a wretched two years, but warned that vacancies continue to rise and capital values are still declining.

The London market is proving to be the most robust, and Land Securities reaffirmed that it expects capital values to fall by between 45 to 50 per cent peak-to-trough, the forecast that underpinned its £740m rights issue unveiled in February.

Francis Salway, the chief executive of Land Securities, said: "Growing investor interest is now evident for both prime and mid-quality properties."

Land Securities sold £357.4m of investment property at 2.7 per cent below the group's March 2009 valuations, at an average yield of 7.7 per cent, for the quarter to 30 June. Over the same period in 2008, the group completed £67m of sales at just 0.2 per cent lower.

Nan Rogers, an analyst at Arbuthnot, said: "This is a more positive statement from Land Securities than we have seen for some time." She added: "We were not seeing any demand for four to five months, and we are now seeing property transactions coming through."

Similarly to other big commercial property groups during the brutal downturn of the past two years, Land Securities has been disposing of property investments to fund the cost of new developments and pay down debt. Yesterday, Land Securities said it had reduced its net debt by 5.3 per cent to £4.48bn over the quarter.

However, the group signalled a divergence between its properties in London and its retail portfolio, which is largely outside the capital. In London, it completed £193.9m of investment property sales just 1 per cent below the group's March valuation – before disposal costs – at an average yield of 7.1 per cent. In the quarter, its largest disposal was Portman House on Oxford Street for £155m. But among its retail portfolio, Land Securities completed the sale of £163.5m of investment property at a less attractive 4.6 per cent below the March 2009 valuation.

Furthermore, Land Securities said that its underlying property voids in the retail sector fell from 5.2 per cent on 31 March to 5.5 per cent on 30 June, although this was primarily in out-of-town retail parks. However, Land Securities said the number of units in administration accounted for a further 5.9 per cent of its rent roll, which was an improvement from 6.2 per cent in March. In letting activity, Land Securities signalled that London was leading the way with more businesses looking to commit to leasing new accommodation.

It made no acquisitions in the quarter, but Land Securities said it had starting to "assess acquisition opportunities", aided by its strengthened balance sheet following the rights issue. It said it was "firming up" plans to start in 2010 on two major West End developments.

Mr Salway said: "We maintain our view that patience is a virtue and that opportunities will arise over years not just months, particularly in terms of disposals by banks."