Land Securities H1 underlying profit up; Brexit fears hitting rental values

First half revenue profits at property investment group Land Securities rose 4.5% to £192.5m despite “hesitant” demand for office space in London in the wake of the Brexit vote and a warning of weaker rental values.

The company posted a pre-tax loss of £95m compared with a profit of £707m a year earlier primarily due to a valuation deficit of £259.6m reflecting a 1.8% markdown in assets by the firm's external valuers.

“While our assets are not immune from the uncertainty affecting the commercial property market, the 1.8% decline in their values has not been as large as falls in the wider market as measured by IPD, who provide our commercial property benchmark,” the company said.

“Looking ahead, we expect both our market sectors to see a general weakening of net effective rental values as a result of current uncertainty, but our high quality, well-let portfolio should mean we are relatively insulated. Also, uncertainty usually presents opportunities and we are ready to act.”

The decline in asset values contributed to a loss per share of 12.1p, compared with earnings per share of 89.7p in 2015. The interim dividend rose 9.8% to 17.9p.

Chief executive Robert Noel said the impact of the UK decision to leave the European Union was “having a tangible effect on the commercial property market”.

“Occupational demand for office space in London is hesitant and the vacancy rate has continued to rise. We will watch closely how this uncertainty affects development decisions and construction starts,” he said.

“In retail, we expect consumer spending to be affected by growth in prices exceeding that of pay, which will put increased pressure on retailers. This will continue to widen the gap in performance between dominant destinations like ours and the rest.”