British Land, one of Britain’s biggest commercial property landlords, said it was leasing space at the fastest pace in a decade as tenants bet on the future of work and shopping.
The FTSE 100 group said on Wednesday that it had leased just under 4mn sq ft of space in its workplaces and retail and fulfilment centres in the year to the end of March.
The increase in demand pushed the group’s underlying profit up by a quarter compared with the previous year, to £251mn. British Land’s property portfolio increased in value by 6.8 per cent. Including valuation changes, the company swung from a pre-tax loss of £1.1bn last year to a pre-tax profit of £960mn this year.
The company said demand was coming from big corporate occupiers looking for modern offices, which they hoped would be an asset in the war for talent and were increasingly a necessity for businesses that had pledged to reduce carbon emissions.
British Land leased more than 700,000 sq ft of space to three blue-chip firms in the period: estate agency JLL, law firm Allen & Overy and Meta, Facebook’s parent company.
All three of those lettings were for buildings that will achieve the highest environmental performance ranking.
On Tuesday, British Land’s rival Landsec announced a record year for London office leasing activity. The landlord signed up £63mn of new leases and said tenants were demanding more modern, sustainable space.
During the coronavirus pandemic, “some [tenants] have sat on the sidelines but, because there’s a lack of supply of good quality space, if you’ve got the right kind of space you are able to lease it up”, said Miranda Cockburn, an analyst at Panmure Gordon.
But, she added, “given the current economic environment it will be interesting to see whether that continues to happen”.
A clear demand gap is opening up between new offices and older stock, according to Simon Carter, British Land’s chief executive.
The best space is trading at pre-pandemic rents — giving a surface impression of a market in good health — but a large number of blocks have emptied out as tenants moved to flexible offices or downsized.
According to Carter, the vacancy rate in London “prime” offices is 4 per cent, compared with more than 10 per cent in “secondary” buildings.
Tenant demand has also increased for retail parks, which often sit on the edge of town and offer in-person shopping and click and collect and have become hubs for shoppers during the pandemic.
British Land cut rents last year to attract tenants, with Carter estimating that average lease terms were down 30 per cent from 2018 peaks.
But with vacancy rates slashed to less than 3 per cent, he anticipated rental growth and the value of the company’s roughly-£2bn portfolio of retail parks would increase 21 per cent in the year.