Major British office landlord writes down value of properties following interest rate hikes

The office and retail landlord said the value of its portfolio dropped by £625m (€729m) to £10bn in the year to March 31.

A major British office landlord has written down value of its properties following interest rate hikes.

Land Securities Group marked down the value of its UK real estate portfolio by 6% last year as rising interest rates weighed on commercial property.

In a statement on Thursday, the office and retail landlord said the value of its portfolio dropped by £625m (€729m) to £10bn in the year to March 31. The rate of decline slowed in the second half, said LandSec.

Higher interest rates have weighed heavily on commercial real estate as buyers demand better returns to compensate for the risks of investing in illiquid assets in the face of higher bond yields.

That has been compounded by structural shifts in working patterns that have weighed particularly heavily on offices, echoing the correction to store values triggered by rising e-commerce that took place over the past decade.

LandSec’s London office portfolio accounted for £449m of the writedown, driven by its City of London portfolio which fell 13.9% in the year, significantly more than the 3.6% decline in its larger West End portfolio.

Retail properties

The landlord’s major retail properties, which are finally emerging from years of falling rents and writedowns, outperformed the office portfolio and registered growth of 0.2% in the second half thanks to higher rents.

LandSec has been selling off swathes of its larger, fully leased London office portfolio to raise capital and reduce debt. That has positioned the company to invest in acquisitions and in its development pipeline, which includes a series of projects in London’s Bankside district.

“After a period of proactive capital recycling, most recently with over £600m of non-core assets sold in the past seven months, we have meaningful capacity to invest in high quality assets that add to our best-in-class portfolio at what we believe to be an attractive point in the cycle,” said chief executive Mark Allan in the statement.

The European Banking Authority, EBA, said in its 'risk dashboard' for the final quarter of 2023 that credit quality indicators point to some potential deterioration, albeit from still very low levels.

• Bloomberg with additional reporting by Reuters