Shaftesbury property valuation hit by higher interest rates

Shaftesbury’s chief executive said the West End landlord was well placed to “ride out” an economic downturn, despite a recent fall in the valuation of its properties as higher interest rates bite.

Brian Bickell, who plans to retire if an impending merger with London rival Capital & Counties passes competition authorities, said on Tuesday the popular shopping district was not immune to wider economic challenges.

But the high proportion of overseas visitors and the relative wealth of the shoppers that head to Shaftesbury’s Chinatown and Carnaby Street properties gave it some protection, he added. “Not everyone suffers in the same way, unfortunately,” he said.

Rising interest rates and a deteriorating economic outlook dented market sentiment in the second half, pushing down the valuation of its properties and restraining its post-pandemic recovery.

The portfolio of the group, which owns 16 acres in the area of central London, rose from £3bn to £3.2bn over the year to the end of September, it said in an earnings report on Tuesday.

In the first half of that period, the like-for-like increase was 7.5 per cent, but that was followed by a 3.6 per cent decrease in the second half.

“The portfolio valuation grew in the year, but first-half gains were partly reversed in the second half as valuation yields increased in response to globally rising finance rates and the deterioration in the macroeconomic outlook,” Shaftesbury said.

The decline in the value of the pound had proved a boon to spending from overseas shoppers, Bickell said, drawing a parallel with the 2008 financial crisis.

“We’ve seen a lot of Americans in town this summer,” he said, adding that was despite the abolition of tax-free shopping. “A lot of them take the view that it is cheap anyway so I’m not so bothered about [that].”

In the results statement, the company hailed a “rapid rebound” in the West End economy since the lows of the pandemic.

Rent collection was back to pre-pandemic levels, at 99 per cent, and vacancies had also returned to normal levels at just 4 per cent of estimated rental value. Overall, net property income was up more than a quarter at £83mn for the year.

“We’ve made a huge amount of progress in getting back to where we were in 2019 and we’re pretty much there now,” said Bickell.

He said its estate was busy throughout the week, and that the area’s offices were busier than their City counterparts. Shaftesbury’s tenants are reporting average monthly sales 6 per cent ahead of pre-pandemic levels.

The merger with Capco has been approved by the shareholders of both companies. Discussions continue with competition authorities and the deal is expected to close in the first quarter of next year.

Shaftesbury’s shares rose 1 per cent to 362p in early trading on Tuesday in line with the wider market.