UK Property Market Shows More Signs Of Stability - UKCIG

After more than two years of falling property prices, the UK. property market appears to be showing signs of stability.

The latest evidence was delivered Tuesday by British Land Co. PLC (BLND.LN), the U.K.'s second-largest real-estate investment trust by market capitalization, which reported the first rise in the value of its assets since 2007 and said it had started making acquisitions.

A positive shift in investor appetite combined with limited stock have helped market valuations since June, the company said.

The performance of British Land mirrors last week's results from central London landlord Great Portland Estates PLC (GPOR.LN), which said that the worst was over for the property market.

Both developers remain cautious about the outlook. British Land warned that transaction volumes remained low and that it was "mindful that the waves caused by the financial maelstrom of the last two years have not yet settled."

British commercial property in October posted the third consecutive monthly capital growth at 1.9%, according to the Investment Property Databank Index, with capital values buoyed by improving sentiment and returning liquidity. But the recovery appears to be fragile. "As long as the negative rental cycle persists, so will the concern that the upward trend in capital values could be broken," IPD said.

But landlords now are coming back to the market to make acquisitions.

British Land earlier in November created new executive roles to prepare for acquisitions and investments. Chief Executive Chris Grigg told reporters Tuesday that he had invested GBP128 million in retail and Central London offices, made further bids for GBP500 million of property and was screening a further GBP2 billion of potential investments.

Grigg said the bulk of the outlays would be invested in the company's core markets of retail and offices. Some 3% of British Land's assets are in Europe.

British Land owns over 30 million square feet of retail space, including 50% of the Meadowhall shopping center in Sheffield, one of the largest in the U.K. It also has a large London office portfolio, including a 50% share in the Broadgate estate near London's Liverpool Street Station, Regent's Place near Euston Station and York House in the West End.

The portfolio, including the group's share of joint ventures, rose 1.4% in value in the second quarter to GBP8.29 billion, although it has fallen 2.4% over the past six months, British Land said Tuesday. Net asset value was up 3.1% in the second quarter to 372 pence per share, but down 6.5% from March, 2009.

British Land now has a loan-to-value ratio at 29% with GBP3.3 billion of cash and undrawn facilities.

Great Portland last week bought two West End development properties and is in exclusive negotiations to buy GBP48 million of assets. It reported a 4.2% rise in adjusted net assets per share to 225 pence from the end of July.

British Land's lettings have also improved. It expects to collect an extra GBP8.1 million in annual rent from rent reviews and lease renewals on 2.8 million square feet of space and 510,000 square feet of new lettings. At the same time, the proportion of occupiers in administration fell to 0.8% of total rent from 1.8% in March.

Its portfolio is 94% let, with 98% of current rent still contracted in three years' time.

Arbuthnot analyst Nan Rogers said she was "less optimistic than the market as to the outlook for investment property," while Evolution Securities' Alan Carter said there were "lots of concern about the economy, tenant demand, bank debt and how it all pans out, which is understandable." Still, Carter added that British Land released a strong statement overall.

At 1422 GMT, British Land shares traded down 14 pence, or 2.7%, at 490 pence amid concerns about the outlook for the real-estate market. Great Portland shares traded down 3 pence, or 1%, at 290 pence.