Investment View: It's a good time to be a commercial landlord in capital

Increasingly, London might just as well be considered a separate country when set against the rest of the UK. It's more diverse, it's more liberal in terms of its social attitudes, and its economy is growing really rather nicely.

If you needed evidence for the latter there was a little more offered yesterday when British Land, the property company, announced that its half-owned Leadenhall Building (the Cheesegrater to you and me), a tower currently being constructed opposite Lloyd's of London in the City, will be 51 per cent pre-let.

BL's joint venture that owns the tower has agreed a deal to let 110,000 square feet to Amlin, a biggish Lloyd's of London insurer.

The towers springing up around London create a lot of debate. For me, the Shard looks rather horrible when compared to the simulations released before it was built. The Gherkin looked horrid in the simulations, but these days I quite like it. Regardless of what you think of them, it seems that the new ones are going to have tenants in them when they're built. Perhaps we shouldn't be surprised that an insurer has grabbed space opposite Lloyd's. The sector is doing very nicely, thank you. As a result, being a commercial landlord in central London is paying reasonably well.

The trouble is the market has caught up with this. British Land's shares have been on a sustained run recently and have just reached a new 12-month high.

BL is a Real Estate Investment Trust, which doesn't pay corporation tax if it pays 90 per cent of its income to shareholders as dividends (which are then taxed). It has total assets, owned or managed, of £16.3bn as of 30 September 2012 and the property portfolio is focused on prime retail (60 per cent) and central London offices (35 per cent rising to 40 on completion of current developments).

I'd be optimistic about London, less so about the retail part of the business, although BL's properties are in good locations. All the same, the shares still trade at a slight discount to their most recent net asset value per share (596p) and approaching 5 per cent compared to estimated full-year forecast net asset value per share. The forecast yield, at 3.8 per cent, is acceptable, if hardly stunning in today's markets.

The shares look to be fair value and I'd be inclined hold for now. If they show any sign of weakness and that discount started to move towards 10 per cent (the shares would need to fall to 540p) then I'd think about buying some more.

The same goes for Land Securities. It too has enticed an insurer to rent in a tower with a nickname: the "Walkie Talkie". It too is split between retail and central London offices and its shares have also been on a run. They also trade at a slight discount to net asset value and offer a similar yield.

The broker Charles Stanley notes that Land Sec's development programme is not predicated on growth; rather, the focus is on building more efficient buildings and making sure that break-even rents are fairly low. That, I find to be encouraging. Again, my recommendation would be to hold the shares, but be ready to dip in if they show weakness.

With Hammerson it's all about retail after the company sold its central London office portfolio for a pretty good price. Nothing wrong with that, although I remain wary of retail in general.

Hammerson shares again trade at a very small discount to the net asset value of its portfolio, and provide a forecast yield of about 3.6 per cent. Unless you bought very recently, Hammerson shares will have provided you with a very nice return. Given the state of the economy, and the prospects for retail I'd be inclined to take profits.

The same goes for Capital Shopping Centres. CSC offers a more robust forecast yield but that won't increase much going forward. However, as with Hammerson, the shares have performed very strongly and last month Charles Stanley noted that by most measures Hammerson was ahead. With performance likely to be broadly flat, there's a strong argument to take profits on CSC, as with Hammerson, even though the income you'll get from holding the shares is respectable enough.

Segro is a bit different, with a property portfolio that comprises £4.8bn of predominantly industrial assets concentrated around business centres and transportation hubs. Trading at 70 per cent of net asset value, the shares sit at a substantial discount and offer an impressive yield of 6.2 per cent. Segro helps demonstrate the point about London. Its fortunes are much more closely tied to economic growth in the UK as a whole.

While Segro ought to benefit from the low levels of quality industrial space available and limited speculative development, the economic outlook is a worry. But the shares' price reflects that worry and so are worth holding on to for the moment.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Ramsay Bolton in Game of Thrones
tvSeries 5, Episode 3 review
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tv
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence