Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
That the pandemic has ‘accelerated pre-existing trends’ is by now a cliché most say through gritted teeth. Lots of us hated to admit that our lives were growing increasingly dependent on technology. After 2020, we had little choice.
One such regrettable trend has been the decimation of the high street. I grew up in a small town in the Midlands and returning home recently was pretty harrowing. The high street has looked a bit thin on the ground ever since the BHS and a trail of smaller independent stores closed. Last month, I counted few survivors besides Poundland, Tesco and WH Smith.
Distressing for businesses, depressing for locals, worrying for commercial property investors. Results today from property giant Land Securities captured some of the latter’s anxieties. The FTSE 100 commercial property firm reported a loss for the 12 months ending 31 March of £1.39 billion, with revenue driven down 39.4% to £251 million.
Many of those pre-existing trends accelerated in tandem to drive down Landsec’s profits. The rise of online shopping in lieu of physical footfall hurt the company’s property portfolio. Many shops were unable to pay their rents and were protected by temporary laws from being evicted.
Offices, meanwhile, have been left deserted as white-collar workers migrated home over 2020. Those shifts have battered the company’s London-focused office portfolio.
So far, so bad. The only thing that went up in Landsec’s report was their dividend – interestingly, the company confirmed a full-year payment of 27.0p per share, up from 23.2p in 2020.
The increased dividend reflects chief executive, Mark Allan’s, more positive outlook. For Landsec, much hangs on the reopening. He explained: “We are now in the recovery phase. Government action to support the economy was swift and the speed of the ongoing vaccination programme impressive. As a result, there is the real prospect of a strong consumption led recovery across the remainder of 2021 and 2022.”
Investors may have reason to share Allan’s optimism. With the prospect that rents will firm up as the pressures on tenants ease in a post-Covid world, commercial property remains a potentially attractive way of achieving a more diverse investment income. Compared to the rock-bottom yields available on most bonds, yields on prime real estate assets look attractive. Many hover around 3-4%, often from the same companies whose bonds trade well below 1%.
Landsec sees now as a time to be selective. In today’s report, the company outlined their plans to branch further into retail spaces and expand its central London portfolio – odd, perhaps, given the backdrop from which these markets are emerging. But Landsec realises that far from dying out, these areas are simply morphing. That presents opportunities for a property manager.
For property investors, it’s important to see through the behavioural biases that could cloud your outlook. Recency bias may lead us to give greater weight to current trends such as levels of home working or online shopping than they warrant. Better to look at your investments without preconceived expectations – past performance, as ever, is unlikely to guide future returns.
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