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British Land is hoping to lure an additional investor to back the development of Citadel’s new City of London office tower, as the landlord expects a shortage of new office space in the coming years to boost returns.
The FTSE 250 landlord on Wednesday said it would likely bring in a new investor for the development project at 2 Finsbury Avenue alongside its existing joint venture partner, Singapore’s GIC, which owns 50 per cent of British Land’s Broadgate office campus.
Ken Griffin’s Citadel in April agreed to pre-let a third of 2 Finsbury Avenue, which will include two new skyscrapers of 21 and 36 stories near Liverpool Street. The hedge fund and its sister market-maker Citadel Securities have an option to take more space.
In final results on Wednesday, the company said it was “exploring several capital recycling options”, including bringing in a new partner to “share risk and cost and to accelerate these returns”.
“We want to bring forward more development . . . but we’re obviously conscious of the amount of development we do on the British Land balance sheet,” said Simon Carter, chief executive.
Carter said British Land has been waiting to secure the pre-let and agree the contract to build the towers, to give more confidence to a potential new investor. “We have lots of people approach us, obviously,” he said.
The move comes at a time when many commercial property owners have slashed their plans for new developments in the face of rising debt costs and falling property values driven by higher interest rates, as well as uncertainty around office demand following the Covid-19 pandemic.
Carter said so few buildings were now being planned for the City that he expected a shortage of new office space, which is most in demand from tenants. Many companies want new space to meet their sustainability goals and entice their staff back to in-person work.
2 Finsbury Avenue is expected to be the only major new building delivered in the City when it is completed in 2027, he said.
His comments come as British Land marked down the value of its central London office campuses by about 5 per cent in the year to March, in its results on Wednesday.
Its wider £8.7bn portfolio, which includes urban logistics and retail parks, declined in value by just 2.6 per cent as interest rates stabilised and rents increased. The hit to property prices was much smaller than the 12 per cent decline reported a year before.
A new investor for the flagship Finsbury Avenue project would cap a string of recent deals for British Land. This week it announced the sale of its 50 per cent stake in Sheffield’s Meadowhall Shopping Centre to co-owner Norges Bank Investment Management for £360mn.
In March, British Land sold 50 per cent of a former Meta office near Regents Park to Royal London Asset Management, forming a new joint venture to transform the building into workspace for life sciences companies. The £192.5mn it received from Royal London followed the £150mn that Meta paid to get out of its lease on the office as the social media giant reduced its office footprint.
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