GPE loses resi appetite in ‘challenging’ London market

Resi now makes up less than 1% of the portfolio once pre-sold units are taken out of the equation

Great Portland Estates has continued to take its resi exposure right down in the face of a “challenging” London market.

Announcing its full-year results, the FTSE 250 developer and investor has confirmed pre-selling all but two of the 142 units in its 420,000 square foot Rathbone Square scheme (the freehold of which was sold off to Deka for a headline price of £435.5m in February).

The majority of buyers have already paid their 25% cash deposits, with the rest of the proceeds due to be collected by the end of the year. Meanwhile, the resi element of the Wigmore Island Site, a JV with Aberdeen Asset Management, has also all but been offloaded, bringing in a total of £35m to date for the two firms.

As it stands, resi makes up 9% of the portfolio, although removing the pre-sold units takes that figure down to less than 1%. The firm said increased stamp duty rates, over-supply concerns and cooling measures implemented in some Asian international markets have muted demand in London and describes the outlook as “challenging”.

Overall, the value of GPE’s portfolio dipped by 4.9%, with net assets now standing at £2.74bn, down from £2.91bn over a year earlier.

Toby Courtauld, Chief Executive: “We are pleased to report resilient financial results for the year driven by a strong operational performance. With multiple leasing successes and record levels of capital recycling, we have taken advantage of elevated prices to crystallise development surpluses. As a result, our balance sheet has never been stronger and, in addition to our recently declared special dividend, we have raised the final dividend by 14.3%. Today, tenant interest is healthy for our brand of high quality, well located, sensibly priced space with £6.9 million of lettings currently under offer at a 2.4% premium to March 2017 ERVs.

“Whilst the weight of international capital looking to invest in London remains high, we expect the uncertain political and economic environment to weigh on rental levels across London’s commercial property markets in the near term. Looking longer-term, we are optimistic that the capital will retain its status as one of only a handful of truly global cities.

“In this context, GPE is exceptionally well positioned: Four years of net property sales combined with our recent refinancing successes gives us unprecedented financial capacity to exploit any market weakness with accretive acquisitions; our investment portfolio is well let, off low average rents and with significant reversionary potential; our remaining committed development projects are already 65% pre-sold with strong interest in much of the balance; our exceptional, income-producing, development pipeline is rich with opportunity, offering more than 1.6 million sq ft of flexible future growth potential, covering 40% of our existing portfolio; and, our first class, refreshed team is ready to capitalise on this period of uncertainty.”