British Land Co. sees early signs that UK real estate values may be bottoming out after marking down the value of its portfolio by 12.3% to £8.9 billion ($11.1 billion) in the year through March.
(Bloomberg) — British Land Co. sees early signs that UK real estate values may be bottoming out after marking down the value of its portfolio by 12.3% to £8.9 billion ($11.1 billion) in the year through March.
Valuations have been hit by rising interest rates, which have pushed up yields on other assets, meaning investors in turn demand higher returns to justify the risk of investing in property. That’s been partially offset by rising rents even against a backdrop of anemic economic growth.
A series of rapid rates hikes has roiled UK commercial property, causing a sharp drop in deal making while investors wait for prices to adjust to the new environment. After a quiet first quarter there are signs that investment volumes are now increasing as confidence grows that the interest rate hiking cycle is near its end.
“Higher interest rates have inevitably had an impact on property market yields and, as a result, the value of our portfolio declined by 12.3%,” Chief Executive Officer Simon Carter said. “Whilst we remain mindful of ongoing macroeconomic challenges, the upward yield pressure appears to be easing and there are early signs of yield compression for retail parks.”
British Land’s estimated rental values are up 2.8%, with urban logistics rents up 29.4% as businesses compete for the dearth of warehouse space in city centers that enable rapid deliveries, according to a statement Wednesday. A shortage of the best new office space with top environmental credentials is supporting rents in British Land’s office campus business in London.
Overall the company leased 3.4 million square feet of space across its portfolio last year at rents 15.1% higher than expected.
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