Property giant British Land - owner of the award-winning Blythe Valley Business Park in Solihull - yesterday said the value of its assets per share rose by 7.1 per cent in the first quarter, helped by firm office rental growth, but reiterated it expected growth to slow later in the year.
"Real estate markets are showing robust performance.
"London office vacancy rates continue to tighten, resulting in rental growth and reduction of letting incentives which are now clearly evident," the company said in a statement.
But the company, Europe's second-biggest listed property firm by market value after Land Securities, said growth in the real estate market would slow markedly as returns on retail property, while still strong, were slowing after their outperformance of recent years.
British Land, which holds properties worth more than £15 billion, is expected to report a 12 per cent rise in net asset value (NAV) to 1,667 pence in the year to the end of March 2007, according to the average forecast of seven analysts by Reuters Estimates.
The forecast is a sharp slow-down from 32 per cent growth last year.
British Land said the NAV - a key performance gauge for property firms - was 1,592p per share as of the end of June, up from the figure for the end of March, while underlying pretax profit rose to £73 million in the first quarter, up 33 per cent from the fourth quarter.
The value of its office properties, which account for 36 per cent of its assets, rose five per cent.
Retail properties, which account for more than 60 per cent, increased by 2.9 per cent as weak performance for superstores and shopping centres offset 3.6 per cent growth in retail warehouses.
British Land said the value of its overall portfolio rose by 3.5 per cent in the quarter.
This was slightly below the 3.6 per cent gain over the same period in Investment Property Data-bank's benchmark UK AllProperty index.
"We have raised our March NAV estimate to 1726p after strong first quarter results.
"But the rate of valuation growth should moderate in the second half and be more heavily reliant on London office ERV (estimated rental value) growth," KBC Peel Hunt said in a note.
The company, which shed £2.2 billion in assets in the year to the end of March to help reshape its portfolio and lower its exposure to the fragile retail market, also said it was on track for a conversion to a real estate investment trust (REIT) and remained confident on its prospects.
"We are well on course for a target January 2007 conversion.
"Though this is subject to publication of further detailed regulations in time and a fourth-quarter EGM," said the company, which also owns the giant Meadowhall shopping centre in Sheffield and Broadgate in the City of London financial district.
A REIT is a company that manages a property portfolio and pays little or no tax on income as long as profits are mainly paid out in dividends to shareholders.
British Land, which has increased the number of shopping complexes outside of town centres and prime London offices in its portfolio, plans to dispose of assets worth £1 billion this year as it repositions itself to gain tax-transparent REIT status and capitalise on the booming office market.
The strategy, which chief executive Stephen Hester has said would serve the company well, given the risk of slowing economic growth and rising interest rates, helped the firm to report record earnings last year.
British Land added that City of London office rents had bounced back to their highest level since 2000-2001, with £50 per sq ft being achieved in the heart of the capital's financial district.
"We believe the London office market will grow at a much faster rate than the rest of the UK property market over the next three-to-four years," Mr Hester said.
According to industry research, London office rents are predicted to rise to £60 a sq ft by 2008 and up to £70 by 2010.
British Land shares finished yesterday down 12p at 1364p or one per cent.