Land Securities Group Plc, the U.K.’s largest real estate investment trust, called the economy’s fourth-quarter contraction a “ripple” and said it will push forward with development plans.
“We said the economic recovery would be interspersed with ripples,” Chief Executive Officer Francis Salway said in an interview yesterday. “Our outlook remains the same.”
Britain’s economy unexpectedly shrank 0.5 percent, the most in more than a year, as construction slumped and the coldest December in a century hampered services and retailing, the Office for National Statistics said yesterday. A day earlier, U.K. accounting firm Begbies Traynor Group Plc said more than 33,000 property and construction companies were in financial distress during the fourth quarter.
Land Securities, based in London, has a 1 billion-pound ($1.6-billion) pipeline, Salway said. On Jan. 19, the REIT said it began work on two office developments in central London and got planning consent for another. The projects, which will add almost 1 million square feet (93,000 square meters) of space, are scheduled to be completed from 2012 to 2014.
Derwent London Plc, another developer of central London offices, said the economy’s weakness won’t hurt many of the companies that occupy its properties.
“About half of our tenants are from professional services and the media, sectors that are sufficiently resilient to ride out the drop in GDP,” CEO John Burns said in an interview.
Mike Prew, an analyst at Nomura International Plc in London, said the lack of growth may threaten the prospects of higher rental income for office landlords, particularly in the southeast of England.
“Commercial real estate is the accommodation commodity,” Prew said by telephone. “If the economy continues to contract, there will be less demand for space.”
Even so, Prew said yesterday’s economic figures won’t prompt him to change his ratings for real estate companies.