British Land sees end to property boom

The commercial property boom in the UK may be coming to an end, British Land, the second largest property company in Europe, has warned. The company's ceo Stephen Hester told the media during the presentation of the results for the last quarter in 2006 that the steep price increases of recent years had been a 'correction' to the traditional undervaluation of the sector.

Now, improving yields for bonds coupled with the high price levels - such as the EUR 950 mln price tag for the 'Gherkin' office building in the City of London - could put brake the upward momentum, he said.

But the price growth is more likely to slow rather than to nosedive. 'The fundamentals of real estate remain strong with rental growth available to boost returns. Solid asset backing and long-term dependable cash flows support property yields. This compares favourably to bonds and equities.'

Hester said commercial property in the UK will return to a normal pace of growth. 'It is slowing but will not go down. The property market in recent years has enjoyed supernormal returns. We believe that this process has run its course.'

He also hinted during an interview with newswire AFX that British Land, which converted to a real estate investment trust (REIT) in January 2007, may enter other areas of property investment other than its core markets of commercial offices and out-of-town retail sites. The company is now looking at hotels and pubs as part of its diversification strategy. It already owns several hundred pubs and some hotels.

British Land reported underlying nine-month pre-tax profits to December 2006 of £194 mln (EUR 289 mln), an increase of 12% on the same period a year earlier. The company also cut £1.6 bn of debt as it converted to a REIT.