Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

<< Back to Property & Construction Daily archive

November 21, 2022

London office delivery to hit 20-year high driven by ‘ESG’ ambitions

Company news

Sirius Real Estate (SRE, 82p, £962m mkt cap)

Leading operator of business parks in Germany. HY (Sep) results. Rev +48%, €131m; PBT -3.2%, €75.7m;
EPS -6.8%, 6.0c; interim div +32%, 2.7c; NAV 103.9c (Mar, 102.0c); net debt, €818m (€900m); LTV, 41.0% (41.6%). Trading: Portfolio valuation €2,081m (€2,075m). Disposal of two mature assets in Magdeburg for €13.8m and Camberwell for €18.8m which together represent a 9.4% premium to book value; the proceeds will be recycled into two value-add acquisition assets in H2, in Düsseldorf (€39.8m) and Dreieich (€3.9m). Outlook: “Sirius remains resilient and well positioned to navigate the current macro-economic climate due to its intensive asset management initiatives and the fixed priced contracts it has secured for a significant portion of its utility demands in both Germany and the UK, which should shelter its diverse tenant base from some of the higher operating costs that most industrial companies are facing. As such, the company continues to expect to trade in line with consensus and management expectations for the full year”.

Company news

Sirius Real Estate (SRE, 82p, £962m mkt cap)

Leading operator of business parks in Germany. HY (Sep) results. Rev +48%, €131m; PBT -3.2%, €75.7m;
EPS -6.8%, 6.0c; interim div +32%, 2.7c; NAV 103.9c (Mar, 102.0c); net debt, €818m (€900m); LTV, 41.0% (41.6%). Trading: Portfolio valuation €2,081m (€2,075m). Disposal of two mature assets in Magdeburg for €13.8m and Camberwell for €18.8m which together represent a 9.4% premium to book value; the proceeds will be recycled into two value-add acquisition assets in H2, in Düsseldorf (€39.8m) and Dreieich (€3.9m). Outlook: “Sirius remains resilient and well positioned to navigate the current macro-economic climate due to its intensive asset management initiatives and the fixed priced contracts it has secured for a significant portion of its utility demands in both Germany and the UK, which should shelter its diverse tenant base from some of the higher operating costs that most industrial companies are facing. As such, the company continues to expect to trade in line with consensus and management expectations for the full year”.

Economic data

Office development. Ongoing construction of London offices will ‘catch-up’ in 2023 after post-pandemic delays, delivering the highest volume of completed new office space for twenty years (see below), while new construction will increase from 2024 – 26, with strong ‘ESG’ credential underpinning development, according to the latest Deloitte Crane Survey (link). Refurbishments represent over two-thirds of the volume started. Developers expect the shift to hybrid working to drive down the overall requirement for office space by 10% per head in the long term. But a tilt to refurbishment and ‘flight to quality’ will drive stronger demand for Grade A space. 31 schemes with a total volume of 2.5 m sq ft were started between April and September, a 6% rise over the previous survey, but remains below the ten-year average of 2.9 m sq ft. Average new scheme size rose to 79,000 sq ft from 69,000 sq ft in our previous survey. This is largely due to the 556,000 sq ft refurbishment of BT’s former headquarters, started in Q2 2022. The three largest schemes in the latest survey account for 41% of the total volume of new starts. 2025 should see the real estate industry potentially rebounds from the UK recession and as pressure on stock stimulates rental growth, creating a wave of fresh opportunity for developers. Developers will need to build or upgrade approximately 15 m sq ft pa to meet the Government’s proposed ‘EPC B or above’ energy efficiency standard by the 2030 deadline, but the report concludes “they will fall short of this level, leading to an acute supply squeeze going forward”.

Future office devlopment pipeline

In other data …

The City of London Corporation has approved plans to relocate the capital’s historic meat and fish wholesale markets to a £1bn purpose-built site in Dagenham Dock, ConstructionEnquirer.com (link). The City Corporation has voted to deposit a Private Bill in Parliament on 29 November to relocate Billingsgate and Smithfield wholesale markets to the new East London site. The Corporation will invest around £1bn directly into Barking and Dagenham to regenerate 42 acres of industrial land into a modern wholesale food market. Relocating the Smithfield meat market will also pave the way to reinvigorate the existing site near to the Farringdon Elizabeth Line station. The site will become home to the new London Museum, and cultural and commercial space. The land at Canary Wharf that will be unlocked by relocating Billingsgate fish market could provide around 2,000 homes and other social infrastructure.

Download Insight as PDF

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close.