UK - Land Securities has ruled out a "straight-line recovery" in the UK economy as it pins its forecasts for short-term growth on central London office.
As it posted a pre-tax profit of £378.9m (€44.37m) in half-year results Thursday, the UK REIT said it was "alive to the potential effect of economic uncertainty and changeable sentiment in the capital markets", but believed that uncertainty could create buying opportunities.
Chief executive Francis Salway stressed that not only would the firm be able to refinance existing debt, but it had also built up a warchest for potential acquisitions.
Salway attributed the above-IPD return of 4.9% to the firm's exposure to London office and UK retail, and a development portfolio focused on commercial assets in the capital.
In a statement, he acknowledged that the firm was operating in an "increasingly challenging environment", but said he had been encouraged by the number of enquiries about development schemes in London in Q2.
The UK REIT said Thursday that it had de-risked 50% of its £1.6bn portfolio developments started in 2010 and 2011 through pre-lets, and site and residential sales.
The development portfolio delivered a first-half valuation surplus of 6.6%.
In the meantime, corporate demand for office in the capital "reflects growing recognition that the choice of new buildings is limited as a consequence of the reduction in development activity during and since the downturn".
Salway pointed to a slight decline in take-up of central London office in 2011 as a result of potential occupiers taking longer to make decisions, but expressed confidence in a likely increase in demand for new office space as leases came up for renewal.
London office accounted for the narrowest improvement in the firm's vacancy rates - most likely because it started from a lower rate.
Voids across the portfolio fell from 4.1% to 3.4%.
The most significant improvement was in retail, where the vacancy rate fell from 4.7% to 3.6%.