British Land, still waiting for a reply to its planning application to build a 35-storey office tower on the site of the old NatWest building on Colmore Row, Birmingham, is slowing down work on a City of London project known as the “Cheesegrater” in an effort drive down the cost of building.
This 738-feet Leadenhall Tower, designed by Richard Rogers and London’s tallest skyscraper, was due to have been completed by 2011. This date has now been pushed back by at least a year.
“Our perception is that we may be passing the peak of construction costs cycle,” said Stephen Hester, British Land’s chief executive.
He noted a recent fall in steel future from a peak two months ago.
“We will be re-tendering contracts to see if we can get some costs out, as contractors become more eager to price business keenly,” he added.
Mr Hester also hopes the later date will improve the terms on which the tower can be let, in an occupier market that he expects to pick up from 2010.
He was presenting quarterly results, which showed the value of British Land’s portfolio slipped by five per cent in the three months to June and its net assets by ten per cent to £6.3 billion or 1,212p per share.
The shares ran ahead to 736p early on yesterday, but then eased back to finish unchanged at 722p. The quarterly dividend is raised by seven per cent to 9.375p.
British Land reported a 23 per cent increase in its underlying profit to £74 million, despite a loss of £572 million by the international financial reporting standard, against a £266 million IFRS profit this time last year.
Mr Hester described the investment market for property as “thin, nervous and negative in tone”, adding that he is already looking out for opportunities that the credit crunch may throw up.
British Land has £2.6 billion of undrawn bank facilities available for the purpose and a balance sheet only 47 per cent geared.
It re-negotiated its debt in 2005 at a time of very low interest rates, so that its borrowings cost an average of 5.3 per cent with an average maturity of 12.9 years. Similar financing would cost £810 million more to arrange today, a feature which Mr Hester described as a “unique asset”.
British Land said shallow demand from occupiers has started to squeeze office rents, but its retail rents are still growing, albeit more slowly. Despite that, footfall at the flagship Meadowhall shopping centre in Sheffield is up four per cent.
“Visitor numbers at Meadowhall and at a number of retail parks where we have monitored traffic consistently have increased in the first six months of this year compared with the same period of last year,” British Land stated.
Mr Hester stressed: “The retail property market is one example of a gloom that can be over-egged. “I don’t want to downplay the squeeze in consumer spending... but we have not experienced an increase in bad debt.”
Across British Land’s total portfolio, re-negotiated rents are coming in four per cent above estimates and 98 per cent of the company’s property is occupied.
Like-for-like rents have been growing at 6.3 per cent, compared with an industry average of 3.3 per cent.
“Our prime property assets will see out many economic cycles with a dependability few businesses can match,” Mr Hester said.
His chairman, Chris Gibson-Smith, added: “These first-quarter results demonstrate British Land’s resilience in the face of a weak economy and gloomy market sentiment.”