Great Portland Estates (GPE) is urging shareholders to support a £350 million fundraising initiative to capitalize on what it sees as the bottoming out of the commercial property market. The funds will be used to acquire and develop more office spaces in London, seizing opportunities to buy quality assets at discounted prices.
Over the past year, the value of GPE’s office portfolio has declined by 12 percent to £2.3 billion. However, CEO Toby Courtauld is optimistic that the market has stabilized. “Inflation, interest rates, and political uncertainty have all been impediments to growth, but rents are now increasing, and property yields have largely stabilized, Courtauld noted. He emphasized that current conditions present a rare opportunity to acquire valuable assets at a discount.
GPE has identified approximately £1.4 billion worth of “time-expired” buildings that could be refurbished or redeveloped. To fund these ventures, the company has proposed a rights issue, offering new shares at 230p each nearly half their recent trading price. Despite this discount, GPE shares dropped by 1.3 percent, closing at 417p.
As one of central London’s leading office developers and landlords, GPE has a history of strategic acquisitions, particularly during market downturns. Following the 2008 financial crisis, the company embarked on a significant buying spree with £300 million raised from investors. Courtauld highlighted that the current market conditions differ from 2009, with clearer rental growth prospects. GPE’s rents increased by 3.8 percent in the past year, and the company anticipates a further rise of up to 10 percent for top-tier London offices over the next year.
Courtauld dismissed the notion that offices are becoming obsolete, pointing to a growing demand for high-quality office space. Businesses are willing to pay a premium for modern, well-equipped offices, a trend dubbed the “flight to quality” by leasing agents. GPE aims to meet this demand by transforming older, less sustainable buildings into state-of-the-art, eco-friendly offices.
Nick Sanderson, GPE’s Chief Financial Officer, echoed this sentiment, stating, “Buildings with poor sustainability credentials today will become best in class once we invest in them. This transformation is crucial for attracting both businesses and their employees.”
Despite robust rental growth, the substantial drop in property values led to a pre-tax loss of £307.8 million for the year ending in March, nearly doubling the previous year’s loss of £163.9 million. Excluding valuation changes, operating profits remained steady at £19.7 million. GPE has maintained its final dividend at 7.9p per share, payable in July.
As the London office market shows signs of recovery, GPE’s strategic investments and commitment to quality office space position it well to benefit from the anticipated upturn.
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