Great Portland Estates Plc won local-government approval for what could be its most profitable project: a plan to replace a mail-sorting center near London’s Oxford Street with homes and office buildings.
Great Portland, the developer focused on London’s West End, plans to build 162 apartments and 33,000 square meters (355,000 square feet) of workspace at the Rathbone Place site. The Westminster Council voted in favor of the project yesterday.
The 483 million-pound ($770 million) development may generate a profit of 97.5 million pounds, JPMorgan Chase & Co. analysts including Tim Leckie wrote in an Oct. 8 note to clients. It would be the London-based real estate investment trust’s biggest gain from a development, based on estimated future profits, Leckie said in an e-mail.
Developers have been buying sites near the Tottenham Court Road underground station, betting a high-speed rail line connecting Heathrow Airport to the Canary Wharf financial district across central London will boost values when it opens there in 2018.
Office rents in London’s Fitzrovia district rose 8.3 percent to an average of 65 pounds a square foot in the year through June, according to Knight Frank LLP. In Mayfair and St. James’s, home to Europe’s largest concentration of hedge funds, rents average 95 pounds a square foot, unchanged from a year earlier.
Great Portland’s portfolio will “outperform the wider market as robust tenant demand (led by the TMT sector) for its product, coupled with restricted supply, drives further rental growth,” Liberum Capital analysts including Alison Watson wrote in a note to clients today. “Investor demand continues to outstrip supply and we expect this to maintain yields.”
Liberum has a buy rating on the stock.
Great Portland paid 120 million pounds for the 2.3-acre (1-hectare) site in 2011. Royal Mail Plc is entitled to a stake in the profits from the project, according to a statement by the developer at the time. Great Portland will start work on Rathbone Place next year and expects to be finished in 2016, according to today’s statement.
“We are delighted to have received support for our scheme from Westminster, with whom we have worked very closely over the last two years,” Neil Thompson, a Great Portland director, said in a statement.
The developer bought an additional location between Rathbone Place and Oxford Street, the U.K.’s busiest shopping thoroughfare, from Land Securities Group Plc for 90 million pounds in July.