Unlock Editor’s Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
British Land rejected an alternative tenant to replace Meta in a major London office lease and instead sought to sublet the space itself at higher rents, underscoring the confidence of one of Britain’s largest landlords in prime offices.
The Facebook owner paid £149 million to terminate his lease on an eight-story building near Regent’s Park that he never occupied, British Land announced in September.
The FTSE 250 landlord said on Monday Meta had offered an alternative tenant to take over the lease, but British Land had decided to repossess the building because office rents had increased since the original deal was signed in 2021 – and planned to Renewing a few floors to meet the need for laboratory space.
“This is British Land taking back the building,” said managing director Simon Carter. “The market rents are now much higher than the rents that Meta paid. . . We called it a win-win situation.”
The decision reflects British Land’s confidence that it can achieve higher rents and accommodate life sciences companies by re-leasing office floors in today’s market, despite the challenges faced by office owners.
The broader office market is grappling with rising vacancy rates and falling property values as companies shift to working from home in the wake of the Covid-19 pandemic. However, British Land expects its portfolio – which includes “campuses” around Broadgate in the City of London and Paddington – to buck the trend as companies look for spaces with the best amenities and environmental credentials.
British Land said its office vacancy rate was about 4 percent, half the London average. Tenants signed leases for 368,000 square feet in the last six months at rents that were 7.5 percent higher than appraisers’ estimates.
In half-year results on Monday, British Land said it expects rents in 2024 across its portfolio of London offices, UK warehouses and out-of-town shopping centers to rise at the top end of its previously forecast range.
Carter said strong demand from tenants in these sectors and a better-than-expected economic situation in the UK had improved the outlook. “The acceleration in rental growth actually appears to be noticeable in our preferred submarkets,” he said. “Six months ago we all thought we were going to have a recession. That resilience certainly helped.”
Shares in British Land rose 5 percent in early trading on Monday but remain down 16 percent this year.
British Land reported its £8.7bn portfolio fell 2.5 per value in the six months to September, a smaller decline than last year, as rising interest rates continued to weigh on property values.
Meta, which paid to avoid another 18-year lease obligation as part of a cost-cutting measure, remains a tenant in a nearby British Land building.