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LandSec, one of the UK’s largest listed landowners, plans to sell £2 billion worth of office buildings and develop a reduced-down office to pivot towards residential property over five years.
The FTSE 100 Group, a landlord of major offices for large holders around Victoria, hopes to cut down nearly a third of its nearly £10 billion portfolio by 2030, with retail and housing to about a third each.
The strategic changes announced on Thursday by one of the UK’s most well-known commercial landlords follow the broader trends of the industry. Investors are less likely to bring about significant benefits from high-profile office buildings and are attracted to income related to stable inflation from sectors such as housing.
However, CEO Mark Allan argued that despite headwinds from post-Covid hybrid work, the company still has confidence in the office market. “This is not our appeal to people who say we don’t like the office,” he said.
He described the move to prioritize other sectors and fund new housing projects that continued from the decision to sell high-quality office blocks to focus on generating “income and income growth” for investors.
Alan said he hopes to “trade less and less within and outside the value of the assets and portfolio” in order to reduce the company’s vulnerability to the market cycle.
The sharp rise in interest rates that began in 2022 has led commercial property to a sharp decline, particularly due to the assets of offices that are battling uncertain corporate demand after the pandemic.
Property prices in Europe have fallen by 23% since their peak, with office values falling 38%, according to real estate analyst Green Street. Trading fell by about 45% before beginning the recovery last year, according to index provider MSCI.
The market shows signs of recovery. Covent Garden Landlord Shaftesbury Capital’s portfolio value rose 4.5% to £5 billion last year due to rising rents.
Alan said there was still a strong demand for top quality offices supporting high rents, but said investors’ returns were not attractive due to the high costs of building and maintaining tenants.
The company said in November that 98% of its offices are occupied.
For over two years, the large London office buildings have barely changed hands. LandSec is hoping to reopen the market to elicit plans to redeploy resources to housing.
LandSec hopes to devote its resources to three large residential projects in Lewisham, Manchester and North London. Each could build thousands of homes along with retail and other uses on previously developed land, such as old shopping centres and parking lots.
The company can also buy existing flat blocks to quickly achieve economies of scale. Currently, they only own a few hundred households.
Alan also placed a big bet on the shopping centre after a brutal run in physical retail. He said he is looking for more deals to buy the country’s top 30 retail destinations, following the £490 million acquisition of Liverpool One’s majority management.
