British Land update improves sentiment towards commercial property sector

“It was a decent end to the week for global equities with most markets delivering modest gains. The FTSE 100 moved ahead 0.4% to 6,002, while Germany’s DAX index was up 0.3% and India’s BSE Sensex rising 0.7%. Pre-market indicative prices suggested US markets would open 0.4% higher on Friday. Shanghai’s CSI 300 index jumped by 2% following an extended national holiday,” says Russ Mould, Investment Director at AJ Bell.

“Investors continue to be focused on the potential for more stimulus measures while also keeping an eye on political developments in the US and key economic data points.

“The Nikkei 225 slipped 0.1% after new figures showed a decline in household spending in Japan for an eleventh month in a row in August.

“The latest figures for UK economic growth disappointed, with 2.1% month-on-month gain in August versus market expectations of 4.6%. However, the UK stock market pressed ahead thanks to gains by energy, mining and real estate stocks.

“Rolls-Royce continued to bounce back following fundraising plans. Its shares have now doubled in value in a week.

“European markets were helped by three big name stocks raising earnings guidance for the year, namely jewellery maker Pandora, fashion seller Zalando and pharma group Novo Nordisk. This could fuel increasing investor appetite for European equities which are much cheaper than US stocks.”

British Land

“As an investor in many different types of commercial property British Land is a good bellwether for UK real estate.

“This is why its positive trading update, with rent collection trending in the right direction and the decision to reinstate the dividend, is firing shares in several of the London market’s property stocks on Friday.

“Particularly notable is the recovery in retail – with figures suggesting footfall and sales across its portfolio of shops and shopping centres weren’t too far off pre-Covid levels in September.

“The company has also managed to sell some retail assets above book value – though it looks like these are in more robust areas of retail like large standalone DIY stores.

“So far, the tighter restrictions being brought in don’t appear to be having an undue impact on shopping, though weakening consumer sentiment won’t help.

“And the CVAs dreaded by landlords are a growing menace for British Land as troubled retailers look to reduce their rent bills.

“In a sign the business might face a longer term problem with its offices – occupancy here is way, way down as you might expect given the Government U-turn from ‘return to work’ back to ‘work from home if you can’.

“The question is whether there is a tipping point at which office tenants decide they no longer require a large central hub for their workers.

“We are probably not there yet, but what could happen is a shift away from sites, like those in central London, where there is a reliance on public transport towards locations outside city centres which have plenty of car parking.

“Ultimately there are arguments for businesses retaining their offices in the medium term. After all, working from home isn’t a viable option for everyone, more space might be required to comply with distancing requirements and there are advantages to having people physically on site, particularly new starters.”

These articles are for information purposes only and are not a personal recommendation or advice.