What we do

We create places that make a lasting positive contribution to our communities and our planet. We bring people together, forming connections with each other and the spaces we create. And we provide our customers, partners and people with a platform to realise their full potential.

Central London 

Central London comprises 61% of our overall portfolio by value. 63% of this is located in the West End, with a further 6% in Southwark and 31% in the City, down from 39% at the start of the year. In a market where customers increasingly focus on flexibility, the best quality space which offers the right amenities to attract talent, and buildings which have the right sustainability credentials, we are well positioned; 48% of our assets have been developed over the past ten years vs c. 20% for the overall market, and 43% of our London offices have an EPC rating of ‘B’ or higher vs 15% for the market.

Reflecting this, following record leasing last year, leasing activity remained strong, with £10m of lettings on average 1% above valuers’ assumptions, and a further £31m in solicitors’ hands, 3% ahead of valuers’ assumptions. Current occupancy is stable at 95.1%, which means our vacancy is half that of the London market. We continue to see a gradual increase in office utilisation, as London continues to get busier, and strong interest in our expanding Myo flexible offer. 

We significantly de-risked our current development pipeline via the £809m sale of 21 Moorfields, which despite a 9% discount to March book value, crystallised a 25% profit on cost. Our three other committed schemes are expected to produce an ERV of £38m once fully let, with just £110m of capex left to spend.

Major retail destinations

Major retail destinations comprise 18% of our portfolio, split c. 60/40% between prime shopping centres and outlets. Building on the positive momentum we created during the previous financial year, operational performance over the first half of the year has been strong. Highlighting the attraction of our high-quality destinations, sales were up 8.3% vs last year and LFL sales are now 3.5% above pre-Covid levels.

For many leading brands, online and physical channels are now firmly inter-connected, so we continue to see existing brands upsize, new brands opening stores in our assets as they move from nearby locations to benefit from higher footfall, and digital native brands opening stores to grow customer connectivity and experience. Consumer behaviour has gradually reverted back to pre-Covid trends, with online sales down and in-store sales growing over the past six months.

Given the inflationary pressure on margins for many brands, both online and physical, we expect that the rationalisation of the tail-end of brands’ store portfolios will further accelerate. This adds to the challenges for secondary retail locations, where there remains a significant excess of space, yet brands’ focus on fewer, but bigger and better stores, mean prime destinations continue to get stronger. 

Supported by the investment in our team over the past year and our differentiated focus on growing brand relationships and guest experience, the above trends are clearly visible across our portfolio. We delivered a 120bps increase in occupancy since March to 94.4% and we signed £12m of new lettings, on average 20% above ERV, with a further £15m in solicitor’s hands 7% above ERV. This means that over the past 18 months we have now let or re-let 23% of our total retail rent, on average 8% above ERV.
 

Mixed-use urban neighbourhoods

Our portfolio of mixed-use urban neighbourhood assets makes up 8% of our overall portfolio, split roughly evenly between our standing investments in MediaCity, Greater Manchester and five future regeneration projects in London, Manchester and Glasgow. Given their existing use, the majority of these projects are income producing with a blended yield of 6%, minimising their holding cost whilst we prepare for future development. Comprising a mix of residential, office and leisure space, the overall GDV of these schemes amounts to c. £4bn with a potential staged delivery of individual phases over the next 10-15 years.

We have continued to make good progress in terms of preparing our pipeline, through planning and other pre-development activities. This means we now have optionality to start the first phases at Mayfield and MediaCity in early/mid 2023. However, the changes in capital market conditions have a clear impact on our underwriting assumptions, so any decision to start these will have to reflect an appropriate level of return, with target IRRs in the low to mid-teens. We continue to make good progress on planning at our residential-led scheme at Finchley Road, with a decision expected in the second half of the financial year.
 

Subscale sectors 

Our strategy review identified three parts of our portfolio as subscale; areas that are not currently, and are unlikely to become, large enough to materially impact Group performance and where we have little or no competitive advantage. The areas concerned are hotels, leisure and retail parks, valued at a combined £1.5bn and comprising 13% of our total portfolio, we intend to exit these sectors over the medium term.

The assets in this part of the portfolio are high quality and the longer-term prospects of the relevant sectors are fundamentally robust. Our divestment intention is driven simply by lack of scale and the opportunities we see to redeploy capital into structurally supported growth areas where we have competitive advantage. We are under no time pressure to sell these assets and are focused on ensuring that we secure appropriate value when we do.