The Crown Estate has shaken off declining values in its real estate portfolio on the back of its growing marine portfolio valuation.
The Crown Estate’s London property portfolio value fell by 6.5% to £7.2bn during its 2022-23 financial year. The value of its regional portfolio declined by 11.8% to £1.5bn.
However, those decreases were offset by the landed estate’s marine portfolio valuation, which jumped by 14% to £5.7bn. This was partly driven by its offshore wind leasing activity.
Chief executive Dan Labbad said the marine division was the highest-growth business in the estate.
Elsewhere, the Windsor and rural estate’s total value grew by 16.7% to £1.4bn.
The value of its entire portfolio grew by 1.3% to £15.8bn, buoyed by the boost in marine values. The landowner generated £442.6m net revenue profit, up 41.5% on the previous year.
Labbad said the property valuation falls were in line with the wider market woes, as the industry continues to deal with the impact of inflation, rising debt costs and economic uncertainty.
Labbad said prime office space and its long leases have “proved resilient”. The landed estate’s London properties outperformed its MSCI benchmark by 0.6% during the year. However, the regional portfolio underperformed its MSCI benchmark by 1.3%.
Improving rental outlook
He noted the “overall rental tone has increased” on the back of supply and demand dynamics. In London, the estate secured 102 lettings during the year, which achieved rents of up to 4% above estimated rental values for new leases.
“Where we have seen declines in valuation, it has been in line with the market,” he said. “Our relative performance is in a good place and we are seeing good demand for our product, both retail and commercial, across the portfolio.
“I am cautiously optimistic, but it is clear that there are still some headwinds that we are going to be facing in the near term.”
Steady demand
Labbad said the Crown would continue to invest in the property portfolio to “ensure it remains relevant and fit for the future”, to match the pace of the UK’s shift to net zero.
The void rate in London stood at 18.4%, up from 10.9% in the previous year. In the regional portfolio, the void rate was 7.2%, largely static on the previous year.
Although consumer sentiment in out-of-town retail parks waned, Labbad pointed to a 39% year-on-year rise in footfall in London as well as solid occupier demand more broadly. He also said there was no drop-off in office demand, although it continues to shift towards more flexible offers.
He said: “While our strategy is ambitious, we are not complacent about the challenges ahead, and the economic outturn looks and remains uncertain. However, our focus continues to be not just on how we create value today, but also value into the long term.”
Extended term
Separately, the Crown has reappointed Labbad as chief executive for a second four-year term, effective from the start of 2024.
Sir Robin Budenberg, chair of the Crown Estate, said Labbad’s first term “has involved many substantial achievements”.
Budenberg said: “On the back of this performance the board unanimously agreed to extend Dan’s term for a further four years, seeing his continuation in role as crucial to the successful progression of the Crown Estate’s strategy, ensuring we continue to deliver value for the country today as well as to lay the foundations for future impact and performance.”
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