The Derwent Effect

News

Nadia Elghamry

18 November 2006

Tipping the balance The merger of Derwent Valley with London Merchant Securities has changed the developer’s league table. By Nadia Elghamry

The creation this week of Derwent London may do little to bother the big players on London’s development scene, but it might make life distinctly uneasy for the capital’s next tier.

The company, created through the merger of Derwent Valley with London Merchant Securities, will create a £2.25bn property portfolio. It says it will be the third-largest player in the office market.

It is dwarfed by Land Securities’ £12.9bn portfolio with 9.9m sq ft of offices, says the London Office Database, and development heavyweights such as British Land. with £18.3bn worth of property.

But it could be uncormfortable reading further down the league table.

Grosvenor has a 3.35m sq ft office portfolio, nearly identical to Derwent London’s combined portfolio of 3.3m sq ft of offices.

So, too, for Legal & General, which has extensive exposure to the West End through schemes such as its 14-storey St Giles Court, WC2.

But ultimately it is Great Portland Estates which commentators believe could have the most to lose. GPE pulled out of merger talks for LMS this week after Derwent Valley launched its assault. GPE has a 1.4m sq ft office portfolio, and was running neck and neck with LMS’s 1.4m sq ft and Derwent Valley’s
1.9m sq ft.

The jury is still out. GPE put out a strong set of results this week, but with a 19% share price premium to net asset value, analyst Merrill Lynch says it struggles to justify recommending GPE’s shares as a “buy”. GPE’s depth of development pipeline lowers this risk, it says. With Derwent London moving up the ranks, how long can this continue?

Whither the Olympics following Lemley’s departure?

The deliverability of the London Olympics was thrown into doubt following the shock resignation of Olympic Delivery Authority chairman Jack Lemley at the end of last month. How do those in the industry think this will affect the authority’s ability to deliver, and who could fill his shoes?

Phil Harcourt

director Colliers CRE

“Jack Lemley made a significant difference to the Channel Tunnel, but that was essentially an engineering project. An Olympic venue is a totally different thing. With public sector projects, it is important to ensure the politics do not drive the costs and programme skywards, as transpired with the Millennium Dome, the Scottish Parliament and Bath Spa. Private sector projects have a much better record of delivering on time and on budget.”

Sunny Crouch

Project director, Capital & Provident

“Lemley’s resignation doesn’t need to have any long-term negative implications as long as he is replaced with somebody good. The position needs someone strong, with clear convictions about how things need to be done in order to drive the organisation through a complex project. They will need good diplomatic skills to deal with the private sector, government and the media.”

Jason Keiller

managing director, estate agent Keiller Collins

“Whoever takes over needs to be someone with incredible vision and management ability, because it is going to be a mammoth task. They need to think strategically about the long-term future of the city rather than just the Olympics and the quick, short-term cash injection that it will bring.”

Tipping the balance The merger of Derwent Valley with London Merchant Securities has changed the developer’s league table. By Nadia Elghamry The creation this week of Derwent London may do little to bother the big players on London’s development scene, but it might make life distinctly uneasy for the capital’s next tier. The company, created through the merger of Derwent Valley with London Merchant Securities, will create a £2.25bn property portfolio. It says it will be the third-largest player in the office market. It is dwarfed by Land Securities’ £12.9bn portfolio with 9.9m sq ft of offices, says the London Office Database, and development heavyweights such as British Land. with £18.3bn worth of property. But it could be uncormfortable reading further down the league table. Grosvenor has a 3.35m sq ft office portfolio, nearly identical to Derwent London’s combined portfolio of 3.3m sq ft of offices. So, too, for Legal & General, which has extensive exposure to the West End through schemes such as its 14-storey St Giles Court, WC2. But ultimately it is Great Portland Estates which commentators believe could have the most to lose. GPE pulled out of merger talks for LMS this week after Derwent Valley launched its assault. GPE has a 1.4m sq ft office portfolio, and was running neck and neck with LMS’s 1.4m sq ft and Derwent Valley’s 1.9m sq ft. The jury is still out. GPE put out a strong set of results this week, but with a 19% share price premium to net asset value, analyst Merrill Lynch says it struggles to justify recommending GPE’s shares as a “buy”. GPE’s depth of development pipeline lowers this risk, it says. With Derwent London moving up the ranks, how long can this continue? Whither the Olympics following Lemley’s departure? The deliverability of the London Olympics was thrown into doubt following the shock resignation of Olympic Delivery Authority chairman Jack Lemley at the end of last month. How do those in the industry think this will affect the authority’s ability to deliver, and who could fill his shoes? Phil Harcourt director Colliers CRE “Jack Lemley made a significant difference to the Channel Tunnel, but that was essentially an engineering project. An Olympic venue is a totally different thing. With public sector projects, it is important to ensure the politics do not drive the costs and programme skywards, as transpired with the Millennium Dome, the Scottish Parliament and Bath Spa. Private sector projects have a much better record of delivering on time and on budget.” Sunny Crouch Project director, Capital & Provident “Lemley’s resignation doesn’t need to have any long-term negative implications as long as he is replaced with somebody good. The position needs someone strong, with clear convictions about how things need to be done in order to drive the organisation through a complex project. They will need good diplomatic skills to deal with the private sector, government and the media.” Jason Keiller managing director, estate agent Keiller Collins “Whoever takes over needs to be someone with incredible vision and management ability, because it is going to be a mammoth task. They need to think strategically about the long-term future of the city rather than just the Olympics and the quick, short-term cash injection that it will bring.”