British Land posts an interim loss following a plunge in portfolio valuations

British Land this week became the second UK property developer to report a loss as property valuations tumble amid growing economic uncertainty.

The FTSE 100 company, which owns the Sheffield Meadowhall shopping centre, reported a loss of £34m for the six months ended September, following a profit of £370m in the same period last year.

Successive rate hikes by the Bank of England to counter rising inflation, partly due to rising energy prices, have led to higher property yields and lower values ​​across the company’s properties.

All of the company’s divisions saw a drop in portfolio valuations, with retail parks taking the biggest drop as investment volumes slowed over the summer due to rising borrowing costs.

The value of the group’s London office portfolio also fell significantly, despite healthy demand from clients in financial, creative and business services.

In total, British Land’s assets were worth £9.64 billion at the end of September, down about £800 million from the previous year, leaving the company with a loss.

The trading update comes a day after fellow real estate developer Land Securities reported it had slipped to a half-yearly loss following a substantial fall in the value of its real estate portfolio.

Like British Land, the owner of the Bluewater shopping center witnessed a fall in valuations across his estate, although the biggest drop was recorded in the City of London’s office buildings division.

But on an underlying basis, British Land saw its profit rise 13.3 per cent to £136m thanks to robust rental income growth and good cost management.

Part of the increase in rental income came from the recent acquisition of retail parks in the south of England, a proposition that is becoming increasingly popular with retailers given their lower occupancy costs.

Further benefit came from the recently completed 1 Triton Square development on London’s Regent’s Place campus, where The Gym Group has signed a new lease for a flagship gym.

“Our good operating performance in the first half reflects the high quality of our portfolio and reinforces our conviction in our value-added strategy, which focuses on sectors with pricing power,” said Simon Carter, CEO of British Land.

The company presented an optimistic outlook and told investors it expected further rental growth in the second half of the financial year, supported by low vacancy rates in the prime London office area.

But with a weaker economic backdrop marked by rising interest rates and inflation hitting consumer incomes and companies’ investment plans, it said demand for new office and retail space leases is under pressure.

Richard Hunter, head of markets at Interactive Investor, commented: ‘Given British Land’s exposure to the office and retail sector, the screw is inevitably tightening.

“The return to the office after the pandemic is not yet fully established given the rise of hybrid working, while in retail the weakening economic environment has put pressure on the sector as a whole, with some smaller players going to the wall.”

British land stocks were 1.6 percent lower Wednesday morning at 289.8 pence, meaning they’ve lost about 23 percent of their value over the past six months.