Crown Estate posts stable results amid uncertainty

Despite the headwinds battering the central London retail market, the sector was one of the main drivers of the Crown Estate’s outperformance of its rivals over the past year. The Crown’s overall results were ahead of the market, with a total return of 11% against the annual bespoke benchmark of 8.2%, it said. In the first set of results not including Scottish assets following their transfer into the management of the Scottish government at the beginning of April last year, as required by the Scotland Act 2016, the Crown Estate reported a 4% rise in income to £329.4m returned to the Treasury. Capital value was also up by 7.3% for the 2017-18 year to £14.1bn, and portfolio value was up by 6.8% to £13.3bn. Across the Crown Estate’s portfolio more than 700,000 sq ft of new lettings were secured during the year with agreed rents totalling £41.5m per year, of which 80,000 sq ft was retail lettings in the West End, totalling £12.4m per year of rental income at 14% above ERV. Regional portfolio The Crown’s regional portfolio, which comprises 13 retail and leisure destinations, also completed 470,000 sq ft of lettings and 280,000 sq ft of rent reviews concluded at 4% above previous passing rent. These included the Westgate shopping centre in Oxford, which is 96% let or in solicitors’ hands since opening earlier this year. However, the Crown Estate has not completely escaped the difficulties affecting the retail market with House of Fraser due to close its store at the Crowngate shopping centre in Worcester. In addition, the Crown Estate’s regional portfolio has also been affected by store closures from New Look, which is to shut its stores in the Princesshay shopping centre in Exeter and Crown Point shopping park in Leeds. [caption id="attachment_931421" align="alignnone" width="847"] Westgate, Oxford[/caption] Marginal impact Chief investment officer Paul Clark insisted, though, that the effects of the retail closures would have only a “marginal impact on the business” and that the vacancy rate across the retail portfolio, which makes up 40% of the estate’s overall assets, stood at 3%. But he admitted that “capital values are flat in that part of the business”. Clark added that the Crown Estate, a British Property Federation member, would not be joining any collective action by landlords against CVAs, but added that it supported the stance taken by BPF, which has called on the government to carry out an urgent and independent review into the use of CVAs. “In our experience, when they’re used as part of a broader company restructuring, CVAs have a role to play and we have engaged positively with everyone who’s come to see us,” he said. Asset sales During the year the Crown Estate sold £400m of assets, including Altrincham Park, sold for £63m to Orchard Street Investment Management. It also racked up £97m of sales from its rural portfolio, while spending £136m on acquisitions, of which £135m was on the Everards Brewery site to facilitate the extension to Fosse shopping park in Leicester. In terms of development, the Crown Estate is under construction on two central London schemes, including the £100m redevelopment of Morley House north of Oxford Street, which is due to complete in 2020, and the £100m redevelopment of Duke’s Court in St James’s. It is also bringing forward a 1.2m sq ft development pipeline across 25 projects, including Airwork House on Piccadilly, which won planning approval in March. The Crown Estate is also to launch its own co-working space within its central London office portfolio later this year at 1 Heddon Street with the creation of 350 workstations across 25,000 sq ft aiming to capitalise on the thriving sector, which has been revitalised by serviced office providers such as WeWork. Changing at pace “The world’s changing at pace and we’ve begun to pivot the business to a more customer-centric, services-based model so we can take advantage of the trends that are transforming how we want to work, live and socialise in the future,” chief executive Alison Nimmo said. The year ahead is looking “subdued”, Clark said, but added that it still appeared to be a “reasonably stable environment for yields”. “We’re looking broadly at single-digit returns,” he added. [caption id="attachment_931420" align="alignnone" width="847"] Alison Nimmo[/caption] To send feedback, e-mail Louise.Dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette