The pain in the retail sector is being felt in all sorts of places.
Among those enduring the most are the landlords of struggling store groups.
They have suffered some of the biggest losses when retailers and restaurant operators undertake a Company Voluntary Arrangement – the process by which they restructure their estates to negotiate rent reductions with landlords and shut underperforming outlets while continuing to trade.
Examples during recent times include Mothercare, Carpetright, Debenhams, Sir Philip Green’s Arcadia Group and Monsoon Accessorize.
Property companies have complained for some time that the process is being abused by retailers and being used for a purpose for which they were not designed.
Some have started to fight back.
British Land recently voted against CVA proposals tabled by Monsoon Accessorize and followed this up by tabling a legal challenge.
So it was interesting to hear Chris Grigg, the chief executive of British Land, say today that the sector may be past the worst in terms of CVAs.
He told Sky News: “It feels as if overall that retailers are still suffering the pressures that we’ve seen and that’s a function of some of the issues around shopping online, it’s a function of relatively low consumer confidence – despite full employment.
“So I don’t think those pressures are going away any time soon, but on the other hand, more and more retailers are learning to adapt.
“So I think we’ve certainly seen a shake-out, I don’t [believe] it will be an end to this but obviously we have seen less CVAs this last year than we did previously – so maybe [it’s] an improving trend.”
That said, the pain is still being felt in other ways.
On Tuesday, Land Securities, the owner of the Trinity shopping centre in Leeds, the Gunwharf Quays centre in Portsmouth and the Westgate centre in Oxford, wrote £368m from the value of its property portfolio, most of which reflected a drop in the worth of its retail parks.
That dragged the company to a half year pre-tax loss of £147m compared with profits of £42m in the same period last year.
Today, British Land – whose retail assets include the Meadowhall shopping centre in Sheffield, Drake Circus in Plymouth and the Whiteley centre in Fareham – followed suit, writing down the value of its portfolio by £593m, nearly all of which was in its retail assets.
That meant half year pre-tax losses widened from £42m to £440m.
Mr Grigg explained: “We’re in a tough market for retail just now. We’ve tried to take a conservative view but, as you know, our valuation is done by external parties and that’s their best view of what that value is – and so I think it’s a fair write-down.”
The results from both companies also, however, showed how the pair are diversifying away from retail.
Land Secs on Tuesday highlighted the strength of the office market in London and said it would be adding one million square feet worth of extra office space in the capital – part of a £3bn pipeline of developments it is planning.
Today, it was a similar story from British Land, with Mr Grigg pointing out that the company let 1.3 million square feet of new and existing space during the six months and highlighting a planned pipeline of office development covering 1.2 million square feet – much of which is at the company’s famous Broadgate centre, in the heart of the City of London, where it can charge some clients as much as £80 per square foot for prime office space.
The company has also launched a flexible workspace brand, Storey, to compete with the likes of WeWork.
Launched two years ago, in recognition of changing workplace requirements, it is already running across nearly 300,000 square feet of space and, Mr Grigg said today, was proving successful in attracting new and different types of occupiers to the company’s buildings.
He said nearly three-quarters of these were in the technology, media and telecoms sectors.
The company also revealed today that SkyScanner, the online travel brand founded in Scotland and which is now Chinese owned, had just agreed to take 45,000 square feet of space – with Storey acting as service provider – at its Regents Place development just off Euston Road in north London.
Mr Grigg said that, despite the political and economic uncertainty engulfing the UK at present, the demand for office space in London had remained resilient.
“It’s been terrific for us over the last six months. London’s been very resilient and also we’ve been taking more of our [market] share in terms of office lettings.
“Part of that is a function of the fact that we kept on developing two or three years ago – some other people were a bit more conservative than us, fearing that there would be a big exodus from London. That hasn’t happened.
“What we have definitely seen is that a lot of employers really want to be in London despite some of the uncertainties. If you boil that down, what is on our customers’ lips a lot is the war for talent, where they need to be, and London – particularly for new and growing industries – has been a great pool for talent and we don’t see that going away.”
The single biggest project for the company, however, is the vast mixed-use development it is planning for Canada Water in south-east London.
British Land recently won planning permission for the 5 million square foot scheme which will include commercial, retail and community space as well as 3,000 new homes.
The statements from both British Land and Land Securities during the last 48 hours highlight how, despite the gloom engulfing the retail sector, both are still investing for the future and diversifying away from retail.
Despite this, investors are struggling to see past the latter factor, which is why the shares of both companies trade at a 30% discount to net asset value per share – the sum, per share, that would be realised were they to be broken up, all their assets sold and all their debts repaid.
At some point, should the pain in the retail sector finally end and the uncertainty surrounding the UK economy come to an end, that may come to look like a bargain. But perhaps not yet.