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Property firm links fall in London office market demand to Brexit vote impact


Land Securities built London's Walkie Talkie skyscraper

Land Securities built London's Walkie Talkie skyscraper

Land Securities built London's Walkie Talkie skyscraper

Britain's biggest listed property company has flagged a fall in demand in the London office market as the impact of last year's Brexit vote starts to bite.

Land Securities chief executive Robert Noel had previously warned that a vote to leave the EU would create business uncertainty, which would in turn lead to falling demand, lower rental values and a reduction in construction commitments.

"This is happening", Mr Noel said, although "less than we expected".

UK commercial developers are bracing themselves for a slowdown in demand, with the Brexit vote already leading to financial firms relocating offices and moving staff out of London to the continent.

Mr Noel added that Land Securities' key markets have "paused for breath".

He said: "We won't be sure of the long-term effect of Brexit on our markets for some time.

"Over the next 12 months, we're unlikely to see rental values grow in London unless we have more certainty on movement of people and the UK's terms of trade with the EU and the rest of the world."

Shares in the developer, which built London's iconic "Walkie Talkie" skyscraper, were down 2% to 1,092p in afternoon trading as investors also digested its annual results.

Full year pre-tax profits collapsed to £112 million from £1.3 billion due to a valuation deficit, although revenue profit rose 5.5% to £382 million in the year to March 31.

The company said its combined portfolio was valued at £14.4 billion and, with adjusted net debt broadly unchanged over the year at £3.3 billion, its loan-to-value was 22.2%.

David Brockton, analyst at Liberum, said: "Modest long-term value is arguably present in Land Securities' share price, but we maintain that the scale of this upside remains insufficient to warrant a positive rating at present, given elevated near-term risk and the fact the direct occupational market is only just starting to turn down.

"Land Securities is not immune from a weakening outlook for large floor plate offices in London and retail rents may equally face pressure as weaker demand and higher cost of goods sold bite occupiers."

The group said it had completed the 3.1 million square feet speculative development programme commenced in 2010, and now had only 283,000 square feet available to let.

Land Securities could also choose to exploit a 1.4 million square feet pipeline of future development opportunities "when the time is right".

The company said it would pay out a final dividend of 11.7p, taking the total yearly payout to 38.55p a share.