Warming Signs in U.K. Commercial Property

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Later today, the UK's biggest Reit, Land Securities, is likely to underscore the improving nature of the market when it publishes its half-year numbers. Land Securities' shares have put on 53 per cent in the last six months, while British Land's stock has grown by 29 per cent.

Chris Grigg suggested yesterday that British Land's improved fortunes were "testimony to the quality of our portfolio and strength of management." That is no doubt true, but a number of other factors beyond the company's control have also helped.

Historically low interest rates have allowed some that would have have faced crippling interest charges to hold on to assets, rather than swamp the market with property at fire-sale prices. Likewise the banks, which were hit last year largely because they took on far too many property assets of questionable value, have not rushed to offload toxic assets either.

"The banks have been keen to avoid crystallising losses on their property books and so have not flooded the market with emergency sales," says Oliver Gilmartin, a senior economist at Rics. "They have been careful to manage assets off their balance sheets carefully, which has aided stability."

Despite the strides made over the last few months, and the major players in the industry making plans for investment rather than worrying about further write-downs, some in the industry warn that there could still be trouble ahead.

"Recent price rises have largely been driven by the shortage of supply. While there are many potential buyers of commercial real-estate, at the moment not many people want to sell. In addition, real drivers of value are still weak," says Jonathan Thompson, head of real estate and building at KPMG. "Reduced spending by consumers, along with business failures, is driving down occupancy and rental rates; would-be renters and purchasers of commercial property are still in short supply.

"The biggest problem is perhaps the record amounts of outstanding loans secured on commercial property globally. While the outlook is slightly rosier than a couple of months ago a real recovery of the sector might not yet be around the corner," he said.

Minerva offer: Developer rejects 50p-a-share bid

City of London property developer Minerva (MNR.L) yesterday rejected a cash bid from its biggest shareholder that values the group at £84.5m. In further evidence that the UK's commercial property market is thawing, KiFin, an investment firm controlled by South African businessman Nathan Kirsh, offered 50p a share, representing a 31 per cent premium to Minerva's closing price of 38.25p on Monday evening.

Minerva's board rejected the offer, which they said "significantly undervalues the company", adding that the bid was "opportunistic and unwelcome". The market reacted yesterday by sending Minerva's shares up by 42.18 per cent to close at 52.25p, slightly ahead of Mr Kirsh's offer. It is not the first time Minerva has attracted bids. In July last year, Dubai Limitless, a sovereign wealth fund, offered 160p a share, but withdrew after failing to win the backing of the developer's lenders. Minerva's two biggest developments – St Botolphs and Walbrook, both in the City – are expected to open next year.

Provided by The Independent—from London, for Independent minds

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