London’s commercial property market is showing robust signs of recovery after experiencing significant challenges over the past few years. A major move by one of London’s leading landlords, Great Portland Estates (GPE), is signaling a positive shift in the market dynamics. On Thursday, GPE announced plans to raise a substantial £350 million through a rights issue to invest in new properties across the city. This initiative aims to capitalise on the tightening office supply in London, particularly in the West End and the City areas, where GPE owns over 30 properties.
Understanding the Rights Issue
A rights issue, a financial mechanism at play here, allows existing shareholders to purchase additional shares in the company at a predetermined price, which in this case is set at 230 pence per share. GPE’s move is designed to fund further developments and acquisitions, netting around £336 million after expenses.
The Impact of Remote Work
The ongoing concerns about how remote working practices during the pandemic have affected the commercial property sector seem to be dissipating. Toby Courtauld, GPE’s chief executive, noted a correction in asset values reminiscent of 2009 levels. He suggests that now may be an opportune time for property investments in central London, especially since the company is transitioning from selling to buying assets for the first time since 2013.
The Race for Sustainable Office Spaces
The market is currently experiencing a surge in demand for top-quality office spaces that meet high sustainability standards. With the majority of office properties returning to the market in the next three years rated below ‘C’ for energy performance, there’s a heightened competition for energy-efficient buildings. This is particularly significant because, under UK regulations, office spaces must have a minimum ‘E’ energy performance rating to be eligible for new leases or renewals.
Analysts’ Take on the Market
Industry analysts are optimistic. Barclays has highlighted the rights issue as a robust endorsement of the London office market’s potential. Similarly, Morgan Stanley predicts that March 2024 could mark the lowest point in asset values for this cycle, suggesting potential for value stabilisation and subsequent growth.
Market Performance Indicators
Other major players in London’s commercial real estate sector, such as British Land and Shaftesbury Capital, have also reported strong performance metrics. British Land boasts a high portfolio occupancy rate of 97%, while Shaftesbury Capital has successfully negotiated 526 lease deals in the past year, surpassing expected rental values. Ian Hawksworth, CEO of Shaftesbury Capital, commented on the bustling activity in their West End estates, propelled by high foot traffic and a boom in international tourism.
Looking Ahead
As London continues to attract overseas investment, expectations are high for a surge in activity in the latter half of 2024, especially if office occupancy rates continue to climb and businesses increasingly view their office spaces as vital for attracting top talent. With strong financials and a strategic focus on growth, companies like Shaftesbury Capital are well-positioned to capitalise on the opportunities presented by London’s evolving commercial property market.