Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Great Portland Estates has turned a net buyer of London property for the first time since 2013 as high interest rates and plunging property values shake up the commercial real estate market.
Chief executive Toby Courtauld, known for a run of well-timed acquisitions during the real estate downturn after the global financial crisis, said the past six months were the “first time we’ve been a net investor . . . in a very long time”.
“Exactly where and when we hit the trough of the market is always going to be moot. More relevant is that we are finding value,” he added. “Next year we are likely to buy more than we sell.”
The FTSE 250 office landlord and developer has bought £123mn of property around Soho and Oxford Street as well as in Bermondsey since March and is eyeing another £700mn worth of investments.
Commercial property values have plummeted this year as higher interest rates strain a market that benefited from decades of cheap borrowing.
GPE reported the value of its portfolio dropped 10 per cent to £2.3bn in the six months to September.
Barclays analysts said the portfolio has been written down by 16 per cent since its peak in March 2022, noting that recent declines were steepest in its retail holdings compared with its office buildings.
GPE’s decision to start shopping in the depressed market echoes comments by Land Securities, one of the UK’s largest listed landlords, which this week predicted buying opportunities in the coming months.
Courtauld said its buying was focused on “old, time-expired buildings that need improvement . . . at very attractive prices”.
The move is underpinned by strong demand from corporate tenants for high-end offices, especially in London’s West End. The company reported a 3.5 per cent vacancy rate for its office portfolio.
GPE, which has provided offices to companies such as KKR and Glencore, said the rents agreed since March were a record 13.4 per cent higher than valuers’ estimates and upgraded its forecast for rental growth this year. It said office rents could rise as much as 8 per cent.
The company, which is based on the historic estate of the Dukes of Portland, said it was contemplating £300mn in asset sales that would “provide additional firepower to take advantage of current market conditions”.
“We may not see deep distress . . . like we saw after the GFC [global financial crisis] but we certainly will see some motivated sellers we think,” Courtauld said.