Landsec, the UK's largest commercial property developer, has announced a strategic shift towards retail property, defying market pessimism by claiming there is no slowdown in consumer spending. The FTSE 100 firm, which owns major shopping destinations like Bluewater in Kent, Liverpool One, and Westgate in Oxford, plans to scale up its investment in retail while reducing its exposure to office buildings.
Strong Retail Performance
In its full-year results released on Thursday, Landsec stated that growing investment in major retail destinations remains its highest conviction call, citing high income yield and attractive income growth for the right assets. Chief Executive Mark Allan emphasized that the company has not observed any drop-off in consumer spending at its retail locations, with data showing strong growth in spending and footfall.
“We see no slowdown in activity there at all, and most importantly for us, no slowdown in leasing demand,” Allan said. He attributed this resilience to a concentration of spending into fewer prime locations, rather than a reflection of the wider market.
Retail Outperforms Offices
Landsec claims that retail offers the most compelling returns compared to offices, with an initial income yield 200 basis points higher. Leading brands such as Uniqlo, Sephora, and Inditex-owned Zara and Bershka have opened more stores at Landsec sites than elsewhere. Meanwhile, construction costs for London offices have surged 41% in five years, and while rents have risen due to tight supply, Landsec sees better potential in retail.
The firm plans to reduce its office portfolio from around £6 billion to about £4 billion, with no new office investments planned after its current London development programme completes in the coming months.
Financial Results
Landsec reported a pre-tax profit of £346 million for the year to March, down 12% from the previous year, as rental income grew 5% to £562 million. Its share price rose 1.6% on Thursday to 580p, though it remains down 6% year-to-date.
