Commercial landlord British Land (BLND.L), opens new tab has outperformed the broader UK property market, thanks to its strategy of adding more out-of-town retail parks to its portfolio that has allowed it to weather beaten-down building values in the sector.
The Broadgate owner has been doubling down on its investments in retail parks since 2021 as its core business of office-focused campuses still recovers from steep valuation declines in the aftermath of the Covid pandemic and the ill-timed UK mini-budget of 2022.
British Land is now the country’s largest direct owner and operator of retail parks, which are large suburban shopping centres that house discounters and multi-channel retailers and have traditionally attracted tenants with lower rents.
This segment of the industry has fared well, mainly due to an increased preference for click-and-collect services, where shoppers order online and collect items from stores.
Roughly a quarter of British Land’s total assets under management comprises retail parks, compared with 15% in 2021.
As of March 31, retail parks constituted about 48% of its total annualised gross rental income, a jump from the 27% reported at the close of 2021.
The company’s bet on retail parks appears to have paid off. It has outperformed the wider MSCI All Property total returns benchmark by 300 basis points at the end of its financial year to March 31.
The stock has risen about 21% over the past year, outperforming a 7.3% increase in the wider real estate index (.FTUB3510), opens new tab.
British Land’s CEO, Simon Carter, recently highlighted the strength of the group’s retail parks, noting their near full occupancy, a stark comparison to the 4% vacancy rate across the broader retail market.
CLICK-AND-COLLECT BOOST
The company’s most recent earnings also reflect gains from its investments in retail parks. Last week, British Land posted a better-than-expected rise in annual profit, and its valuation writedown for the last financial year was relatively smaller than its sector peers.
The valuation of British Land’s retail park buildings rose about 3% at financial year-end, while its close competitor Land Securities (LAND.L), opens new tab, which focuses on shopping centres and retail outlets, recorded a 1.1% drop in valuations of its major retail properties.
“The growth in click-and-collect … is clearly a convenient mode for consumers, and it is also cheaper for the retailers to distribute that way rather than delivering to people through front doors,” said James Carswell, analyst at Peel Hunt.
British Land Chief Financial Officer Bhavesh Mistry told in a post-earnings interview that there was strong demand from retailers to take up more space in retail parks.
“Occupancy-cost ratio for retail parks is less than 9%, which plays 12%-13% in shopping centres, and we would like to buy more retail parks,” said Mistry.
British Land has acquired eight retail parks over the last three years, and now owns 44 such facilities with Glasgow Fort and Fort Kinnaird to name a few big ones.
Some of British Land’s top tenants by rent in its retail parks include Kingfisher, Currys, DFS, Dunelm, Pets at Home and Marks & Spencer.
