Land Securities said today that it remains vigilant of a rapid upswing in construction costs after securing work at “attractive levels” in 2012.
The developer also said it was “right to press ahead” with speculative construction and had secured 56 per cent of lettings on the Walkie Talkie, 20 Fenchurch Street, a year ahead of completion.
Land Securities posted full year results to 31 March 2013, with pre-tax profit up 3.5 per cent from £515.7m to £533m and net asset value up 2.8 per cent.
It said it had “good year, despite dreary economic conditions”, adding that “our development window remains open”.
Land Securities’ proposed developments portfolio was up 3.7 per cent, due to design changes and “lower than expected construction costs following receipt of tenders”.
It added: “Development is about timing. Looking at all of the schemes we have started and completed in London since 2010, 91 per cent of the floorspace had been let or sold by 31 March 2013.
“We were right to press ahead with speculative construction, and we are right to keep building today.
“Construction costs have remained at attractive levels but will increase rapidly with a sustained upswing in activity. We remain vigilant.”
The company has given Mace the go-ahead to start the £768m Victoria Circle scheme, while work is also under way at the Zig Zag Building and Kings Gate. Trinity Leeds opened in March with, 95 per cent let or in solicitors’ hands.
Land Securities said its strategy to focus on developing early in the cycle “led to success at Trinity Leeds and Buchanan Street, Glasgow, which both opened their doors close to fully let in March”.
It said retail “remains tough, with the consumer still under pressure”, but that the firm was prioritising “destination shopping centres” and convenient edge-of-town retail parks which were “well placed to compete” with changing shopping habits.
It also said leisure was an “increasingly important part of the mix”, including across retail developments, after acquiring The Cornerhouse in Nottingham and The Printworks in Manchester.
In London, it said low business confidence remained a key factor in subduing demand but, as last year, it also limited the supply of new space being developed.
Take-up in central London for the 12 months totalled 0.9m sq m compared with the 10-year average rate of 1.1m sq m, but with pockets of activity in 20 Fenchurch Street, EC3, and 123 Victoria Street, SW1.
Land Securities also quoted CB Richard Ellis, which estimated that just 1.8m sq m of office space will be developed or extensively refurbished in the four years from 2013 to 2016, which works out at less than 0.5m sq m of space per annum.
Land Securities’ office outlook
“Looking at longer-term dynamics, the office market is changing.
“Modern occupiers are increasingly looking for their new space to accommodate more people while providing excellent facilities and cost-effective services in a great location.
“Floor plans must respond to greater use of open-plan working and more flexible meeting areas.
“Technical resilience in the lift capacity, power supplies, heating, cooling, lighting and environmental performance are increasingly important factors.
“As we move forward, the most successful schemes and assets will be those that are well-placed to meet the efficiency demands and quality expectations of occupiers.”
But the group added: “It is important that we keep anticipating and responding to the ever-evolving needs and expectations of today’s occupiers in the way we plan, design, build and manage our buildings.”
Land Securties undertook development and refurbishment expenditure of £356.5m in 2012. It also made £529.4m of acquisitions including X-Leisure and The Printworks, Manchester.
Total business return – including dividends and adjusted diluted NAV growth – was 8 per cent.
Looking ahead, chief executive Rob Noel said: “We move into a new financial year with an optimism tempered by caution.
“In London, we expect the occupational market to be busier, but take-up to remain below the long-run average. We remain confident we will continue to gain a good share of lettings through the quality of our buildings.
“Overall, the retail market will remain challenging, but the response to structural change will continue to separate successful retailers – and property assets – from the rest.”
Development and planning
123 Victoria Street, SW1 Practical completion was achieved in August 2012 and the building is 78 per cent let.
62 Buckingham Gate, SW1 This 24,160 sq m office and 1,450 sq m retail development completes in May and is 10 per cent pre-let.
20 Fenchurch Street, EC3 The building’s 62,940 sq m of office building is 56 per cent pre-let or in solicitors’ hands – a year ahead of completion. Lettings have been ahead of expectations in terms of rental level, lease length and incentives.
Kings Gate, SW1 (trading property) This prime residential development will comprise 100 private apartments over 14 storeys, providing 10,120 sq m of contemporary space; 59 of the 100 apartments have already been pre-sold, with completion scheduled for January 2015.
The Zig Zag Building, SW1 The scheme comprises a 20,910 sq m office and retail building. Construction started in November, with practical completion scheduled for January 2015.
Victoria Circle, SW1 Phase 1 will provide a 67,500 sq m mix of retail, residential, office and public amenity space. Demolition work started in October and completion of the scheme is due in April 2016.
1 & 2 New Ludgate, EC4 LS completed demolition during the year. A construction contract is fully tendered and completion of this 35,210 sq m proposed development of high-quality office, restaurant and retail accommodation will be 23 months from commitment to build.
1 New Street Square, EC4 Demolition started in March 2013 and the earliest completion date for this extension to New Street Square campus is July 2016. Land Securities said its success at New Street Square gives the company confidence in the prospects for this scheme, when delivered.