Land of little hope


Brit Land

949.5p -12.5p


1,598p -57p

BEING one of the glossiest operators on the real-estate block, British Land's 1.4 billion hit to the value of its property portfolio is one of the most graphic indicators of the troubles of the sector.

The developer, which owns most of the prestigious Broadgate estate in the heart of the City, and is in the forefront of some of London's most ambitious property developments, saw the value of its estate fall 9 per cent to 14.6 billion in the final three months of 2007.

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Even worse, British Land's net asset value per share – a key performance touchstone in the industry – slumped 17 per cent to 1,401p.

The grim news from one of the property sector's undoubted heavyweights comes after recent figures from the Investment Property Databank showed that total returns on property have nosedived.

Including rental income and capital growth, the IPD said property returns fell 7.6 per cent in the final quarter of last year. It is the biggest drop the IPD has ever recorded.

So far, rental growth has held up surprisingly well despite the fall in property values.

But surely this cannot continue in the current gloomy climate. If the economy does deteriorate as many believe it will, perhaps even heading into recession, then demand is bound to fall off for new office space, in London's Square Mile in particular.

Financial firms don't tend to look for new office space to support business expansion if they are laying off thousands of workers because there are not the deals to support it.

The last recession, from 1990 to 1992, is the depressing template for this. With its strong City exposure, British Land is obviously vulnerable in this respect.

It is estimated that property developers expect to open about five million square feet of extra office space in the Square Mile by the end of 2009 that has yet to be firmly let.

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Stephen Hester, at British Land's helm, has some breathing space for his somewhat surprising optimism for the sector: that a short economic downturn of a year or so would not throw real estate prospects wildly off course.

But if the gathering attenuation in the sector continues into early 2009, things will look much more pessimistic.

The strength and speed of the property slump have taken seasoned professionals by surprise, so what chance the rest of us?

Almost a year ago to the day, I was having lunch with a leading UK property company chief executive, not far from Berkeley Square in Mayfair.

The sun was shining, a nightingale might even have been singing, and all was for the best in the best of all possible property worlds.

He told me that the buoyancy in the sector was more resilient than the previous boom that ended when the dot-com firework fell to earth in 2000-1.

Turbo-charged City bonuses and a flush of incoming Russian money, he said, meant the London market a year ago was being buttressed by cash rather than dot-com paper profits.

The nightingales aren't singing in the sector now.

WHEN economic times get tough you might pass on buying a Ferrari, but you keep buying tea, condiments, soap and detergent.

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Unilever's annual results yesterday underlined the basic truth that food and consumer goods companies have strong defensive characteristics in downturns.

The sales figures were perfectly decent, even if there were marked fourth-quarter differences in performance between a slower United States, more robust Europe and a sparkling Asia/Africa regions.

Consumer goods giants such as Unilever, Nestle of Switzerland and Danone of France, supply staples.

And sales of such are holding up even as gloom gathers around general consumer sentiment in many parts of the world.

Unilever's Q4 sales in 2007, up 6 per cent, were particularly impressive, and Nestle has already said that it expects its sales to grow within its target 5-6 per cent range in 2008.

Commodity prices are rising sharply for the industry, from edible oils and grains to packaging, but Unilever said this was being offset by passing on the rises to customers and cost-cutting.

Unsurprisingly, it is easier to pass on a 5p or 10p increase in something one absent-mindedly picks off a supermarket shelf rather than adding 5 per cent to the price of some whizzy electronic indulgence.