British Land, the property giant behind Meadowhall and Broadgate, has reported a loss for the first half of the year due to a decline in property values. This comes after Landsec, another major player in the commercial property sector, announced similar struggles linked to rising interest rates, inflation, and economic weakness. British Land’s loss after tax for the six months ending on September 30th was £34 million, compared to a profit of £370 million the previous year.

The company’s net tangible assets, which indicate the value of its properties, dropped by 4.4%. The overall portfolio value declined by 3%, with the Retail & Fulfilment sector seeing a 3.6% decrease. However, British Land did achieve a 5% net rental growth in comparable spaces and managed to lease 1.5 million square feet of space during the period, surpassing expectations. As a result, underlying profit increased by 13%.

Despite facing challenges, British Land remains optimistic about the future. CEO Simon Carter stated that the company’s operational performance reflects the high quality of their portfolio and reinforces their belief in their value-add strategy, which focuses on sectors with pricing power. Carter anticipates seeing yield expansion across the business in the second half of the year, although rental growth should help mitigate the impact.

One of the key factors driving British Land’s success is their Retail & Fulfilment portfolio. The company reported strong leasing activity, covering 1 million square feet and surpassing the estimated retail value by 10.3%. Additionally, their retail parks, which make up 60% of their portfolio, experienced lettings that were only 2.9% lower than the previous passing rent.

While the value of British Land’s Retail Park portfolio did decrease by 3.7% due to yield expansion caused by increased interest rates, the company achieved positive estimated rental value growth for the first time in four years, with a 0.8% increase. Retail park occupancy also increased by 10 basis points to reach 97.5%.

In the Shopping Centres sector, which accounts for 23% of British Land’s portfolio, estimated rental values are stabilizing with a minimal 1% decrease, and yields remained steady. The company has actively managed its shopping centres, improving occupancy rates and driving rent forward. Across the shopping centre portfolio, deals were completed for 478,000 square feet of space, with rents averaging 13.4% below the previous passing rent but 15.3% higher than the estimated rental value. Despite the challenging economic climate, yields have remained relatively stable, and British Land expects the outlook for the best centres to become more attractive as confidence improves.

Overall, the occupational markets have shown signs of improvement, with more retailers recovering to pre-Covid trading levels, and online sales returning to their previous trajectory. Retail sales now make up 24% of total sales compared to 38% during the peak of the pandemic. British Land highlights that successful retailers with resilient business models and effective omnichannel strategies are performing well and selectively taking up space, particularly in retail parks. Brands such as Marks & Spencer, Next, Lush, Rituals, and Pandora are among the retailers exemplifying this trend.

Useful links:
1. British Land Official Website
2. Landsec Official Website