July 16, 2024

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Property group boss likens UK office values to ‘melting ice cubes’

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Office buildings are like “melting ice cubes” for investors because of how fast they are depreciating in the current market, according to the chief executive of one of the UK’s largest listed landlords. 

Andrew Jones leads LondonMetric, which will break into the FTSE 100 this week after a series of deals culminating in a £1.9bn all-share takeover of smaller rival LXi, completed this year.

The company now ranks third by market capitalisation among UK real estate investment trusts (Reits).

But unlike most other listed landlords Jones said LondonMetric did not have a fixed speciality in a particular real estate sector such as offices or warehouses.

“Very few Reits over the last 15 years have pivoted their strategies,” said Jones, who founded the company as Metric Property in 2010. He partly blames the sector’s “habit of clinging to historical specialism and not wanting to evolve” for the decline of the listed real estate market in comparison to private funds. 

Andrew Jones: ‘The money required to keep [offices] fit for purpose is rising quicker than the rents’ © Liam Bailey

A decade ago, LondonMetric had as much as a quarter of its portfolio in offices but it has sold out of the sector since then.

Jones said that a trend for shorter office leases, stricter environmental criteria and higher tenant expectations of facilities all meant that “[office] obsolescence has sped up over the last 20 years” — particularly since the pandemic and the rise of hybrid working. 

“The money required to keep [offices] fit for purpose is rising quicker than the rents,” he said.  

His comments come at a difficult time for commercial property investors. Rising interest rates have driven down values across the sector but offices have also been hit by worries about demand, as companies embrace hybrid working. European office values have…

2024-06-23 06:00:42

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