High interest rates helped wipe £1.3bn from the value of British Land’s property portfolio.
The UK’s largest owner and operator of retail parks saw its portfolio fall 12.3% in value on a like for like basis to £8.9bn in the year to 31 March.
It is the latest in a series of major retail landlords to announce a fall in valuation in their results as high interest rates take their toll on investor appetite for commercial property. In March, listed supermarket landlord Supermarket Income REIT reported a 13.3% like-for-like fall in the valuation of its portfolio to £1.63bn in the six months to 31 December.
The falling values have also been weighing on the profits of major supermarkets, with a number of them recently including major writedowns in their annual results, including Tesco, to the tune of nearly £1bn.
“Higher interest rates have inevitably had an impact on property market yields and, as a result, the value of our portfolio declined by 12.3%,” said British Land CEO Simon Carter.
“Whilst we remain mindful of ongoing macroeconomic challenges, the upward yield pressure appears to be easing.”
Carter said said there were “early signs” of the pressure easing for retail parks, British Land’s preferred format because of their suitability for omnichannel retail including click & collect.
British Land’s retail park occupancy rate was high, at 98.8%, the results said, as difficulties obtaining planning consent helped suppress supply and boost demand.
Most of British Land’s leasing deals are with “national retailers who are increasing their presence in the best located retail parks while at the same time reducing their exposure to the high street and secondary shopping centres”, the CEO’s review said.
“We have actively targeted a broad range of customers including general retailers, grocers, discounters and value retailers to increase the resiliency of our occupier base.
“The format appeals to a wide range of retailers from Marks & Spencer and Next to value retailers such as Lidl, Aldi and B&M,” the trading update added.
There was also an “acute shortage” of logistics space within London’s M25, as customers increasingly expected rapid delivery, the results said. The vacancy rate in Zone 1 was just 0.4%, compared with 2.3% in Greater London.
British Land’s underlying profit grew 6.9% to £264m as strong occupational rates helped drive 5.9% like-for-like net rental growth.
“The past 12 months have been volatile in terms of the economic and political landscape,” the trading update said. “Although more recently the outlook for the UK economy is improving, sentiment remains fragile.
“Against this backdrop, our business is performing well operationally. We leased 3.4 million sq ft of space, 15.1% ahead of ERV and portfolio occupancy is high at 96.7%.”