Some of the largest listed real estate companies in the country have seen close to £8bn wiped from the combined value of their portfolios over the past year as the Covid-19 crisis has wreaked economic havoc.
The figure is a stark sign of just how hard property owners have been hit during repeated lockdowns since early 2020 and the impact of those restrictions on asset values.
Analysis by EG of the latest results from REITs and real estate investment and services companies in the FTSE 350 index found that the combined drop in portfolio valuations from those posting declines stands at about £7.8bn, led by sharp falls at British Land, Landsec and Hammerson. That combined figure is more than double the £3.2bn in gains across companies whose portfolios rose in value.
The valuation drops have also pushed many companies to losses the likes of which they have not seen since the global financial crisis of more than a decade ago. Combined losses across those FTSE 350 REITs and real estate companies left in the red totaled some £6.7bn.
Demand for government action
As property owners await a government decision on how the commercial rent moratorium will be unwound, the figures should serve as a reminder of the risk of leaving real estate unsupported, said Melanie Leech, chief executive of the British Property Federation.
“Our sector raises capital and recycles its profits into much-needed urban regeneration, creating thriving neighbourhoods, supporting a more productive workforce, and ensuring our towns and cities are vibrant and their physical fabric is fit-for-purpose – the very investment that underpins the government’s ‘levelling up’ and ‘build back better’ agendas,” Leech said.
“For every pound lost – whether of income or asset value – we have a pound less to support the government and our communities in recovery. It is time for ministers to stop taking our sector for granted – our high streets have re-opened and our sector’s support of tenants has been extensive and will continue for vulnerable tenants, but it is time to end the scandal of those making a mockery of the moratoriums.”
Bill Hughes, chair of the Property Industry Alliance and head of real assets at Legal and General Investment Management, said that the government has “chosen to overtly undermine the sanctity of income that investors would ordinarily expect to achieve” and that it was time “to recognise the contribution that real estate plays in a productive economy”.
Industry’s responsibility to evolve
But Hughes added that the industry too has a responsibility to change as it exits the pandemic, noting that REITs’ valuation falls were in part a result of “rapidly changing real estate markets and tenant needs” in retail and offices.
“It’s critical that the industry is more progressive and creative, and evolves to ensure that its investment in the built environment is fit for purpose in the future,” he said.
Equity analysts covering listed real estate are hopeful that the worst is now behind the market. At investment bank Peel Hunt, real estate analyst Matthew Saperia said many companies had “weathered the Covid storm fairly well”, notwithstanding the hits to valuations.
“The re-pricing of retail will have had a pretty detrimental impact on the loss, and the challenge going forward is: is there more of that to come? Are we at the bottom? Can we see any reversal in that?” Saperia said.
“If you still own retail you’re still somewhat challenged, but you’d probably look forward and think ‘It can’t be worse than what we’ve just experienced’. If you own offices, alternatives or industrial and logistics you’re probably feeling cautiously optimistic about the future.”
Berenberg real estate analyst Kieran Lee expects a rebound in values as lockdown restrictions are eased. “You’ve had valuers appraise buildings with very little transactional evidence,” Lee said, adding: “A lot of the valuation decline was first-half weighted in quite a few of the sectors, and it was also formed on valuers’ opinion. If you look at the amount of stimulus and what’s happening across the market, there could be quite a sharp rebound. If we’ve got a big growth cycle coming, real estate is a great way to play true economic growth.”
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