Landsec sells offices and pivots to resi to rebalance portfolio
Land Securities is to sell £2 billion worth of office assets and will scale back office developments over the next five years as the UK REIT pivots to residential.
The plan is to “shift development capacity to residential-led projects where returns are expected to be similar but risk is lower, establishing a £2 billion+ residential platform, capitalising on the opportunity to build meaningful exposure to a structural growth market where rents are closely correlated to inflation,” the group said.
Landsec will release £2 billion of its current £6.5 billion capital employed in office-led assets to fund its expansion in residential, where actual net effective income returns are broadly similar to offices when taking into account the much higher lease incentives in offices, but income growth is higher.
“This will see Landsec move towards a more balanced portfolio by 2030, comprising a mix of best-in-class retail-led, residential-led and office-led urban places,” the REIT, which is one of the UK’s largest listed landlords, said.
Offices will go from being 65% of Landsec’s £10 billion portfolio to being a third, with retail and residential having equal weight.
“This is not us saying we don’t like office,” Landsec CEO Mark Allan said. “There is still strong demand for the best quality offices, supporting high rents, but returns for investors are less attractive because of the higher costs of construction and of keeping tenants.”
Landsec is keen to shift resources to three large residential projects located in Lewisham, north London and Mayfield in Manchester, with the potential to build thousands of homes alongside retail, urban parks and other uses.
Allan also believes in the resurgence of retail, especially shopping centres, after many years of decline for the sector and uncertainty over the impact of e-commerce.
The CEO said he was looking for more acquisitions in the retail sector, following Landsec’s £490 million acquisition of a 92% stake in Liverpool One, the city’s largest shopping centre, last December. Landsec’s retail portfolio now includes seven of the top 30 shopping centres in the UK.
