The Crown Estate has announced a restructuring after more than £1bn was wiped off the value of its commercial real estate last year.
The company will focus on its offshore wind energy investment over the coming decades given the effect of the Covid-19 crisis on its London estate.
Plummeting retail footfall during the pandemic drove a decline of 8.3% in the value of its commercial estate in the capital to £7.7bn in the year ending March. Its regional assets fell by 11.1% over the year to £2.3bn.
Chief executive Dan Labbad (pictured), who is now in his second year with the company, said he expected the next year to remain “challenging” for the retail sector, but that increasing footfall as lockdown eases over the summer should provide some relief for tenants.
He also announced an increased focus on tackling the climate emergency and improving public spaces around its properties. “The things that have brought us success to date won’t be the same things that secure the success and growth in the future,” he said.
An early example of this was last week’s announcement of plans for two pedestrian “piazzas” at Oxford Circus station, W1, effectively cutting Oxford Street in half to create new car-free public spaces at the shopping Mecca in a bid to generate more footfall.
Labbad added that the Crown Estate would also bring in major changes to the way it operates, including a “flattening” at executive level. Labbad said he wanted to “remove any hierarchy that doesn’t add to performance”.
That did not mean the company’s estate would escape the microscope, he continued, with “everything from repurposing opportunities to disposals” on the cards. Labbad said the company is reviewing its “entire portfolio”, admitting that “retail is under particular distress”. However, he added: “No decisions have been taken at this stage.”
The void rate across the central London portfolio, which includes most of Regent Street, rose from 4.7% to 8.2% over the year, while the estate collected 85% of rent owed. Rent collection across the regional portfolio, which relies heavily on fashion retailers, was 72%.
The Crown Estate manages the monarchy’s property portfolio and offshore assets, which are worth a combined £14.4bn. That includes shops and offices in central London, huge tracts of countryside, the royal palaces and much of the seabed around the British Isles.
It returns profits to HM Treasury, which then gives the Queen a “sovereign grant” to support her official business and pay for the maintenance of a number of royal properties across the country.
The marine business will “definitely” play a much bigger part in those profits in future, Labbad said. This year alone, a £2.1bn increase in the company’s offshore property values drove its overall portfolio up by 7.5%.
That came after the company identified six new potential offshore wind projects which it estimates could eventually generate electricity for more than 7m homes.
Labbad said: “We think our role in that [offshore wind] space will continue to grow, and therefore it will become proportionately a bigger part of our portfolio relative to where it is today. But we will still remain a diverse business.”
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