Landsec rebalances to residential
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
Landsec will embark on a new phase of its strategy that will see it reallocate capital from offices to residential "where the volatility in returns is lower", the company announced yesterday.
"The next phase of the company's strategy will see it move towards higher income, higher income growth and lower cyclicality," the company said. That will include "establishing a £2bn+ residential platform, capitalising on the opportunity to build meaningful exposure to a structural growth market where rents are closely correlated to inflation via the delivery of the existing pipeline... plus selective acquisition opportunities."
Landsec will join a swelling group of investors that want greater exposure to the UK's Living Sectors, which accounted for a quarter of total real estate acquisition activity last year. Almost half of investors surveyed for Knight Frank's NextGen Living Report plan to increase their exposure to the sectors by at least 80% by 2029. In total, our survey respondents plan to invest an additional £45 billion in the sector during the next five years.
Binding together
Landsec will scale back capital allocated to new office-led development starts by at least half following the completion of its current pipeline. It plans to release £2bn of its current £6.5bn of capital employed in office-led assets to fund its residential expansion. Landsec said the pivot will move it towards a "more balanced" portfolio by 2030, spanning best-in-class retail, residential and offices.
"Whilst the predominant use of space in each of these areas differs, there is increasingly more binding them together than setting them apart, as the way in which modern cities are used continues to evolve, and the lines between traditional uses of successful urban places continue to blur," the company said.
Occupancy Landsec's retail and office portfolios have continued to grow since the company announced half-year results in November. It expects to deliver c. 4% like-for-like net rental income growth this year. You can learn more about the new strategy by watching the Capital Markets Update on Landsec's website here.
House prices
UK house prices ticked up by 0.4% in February, Nationwide said this morning. That brings the annual growth rate to 3.9%, down from 4.1% a month earlier. While the headline figure indicates resilience, rising supply is exerting pressure on prices.
Across the country, new sales instructions have risen for nine consecutive months, according to January's RICS Residential Market Survey. Meanwhile, new buyer demand has lost a little momentum; the net balance for enquiries flatlining at 0% in January—down from a recent high of +16% last August. Inventory levels have risen from an average of 41 to 45 properties per branch since mid-2024.
This increase in supply relative to demand is creating a more competitive market, limiting sellers’ pricing power. While overall house prices remain on an upward trajectory, the pace of gains is slowing, particularly in regions such as Yorkshire & the Humber and the South East. Expectations for price growth in the short term have softened, with RICS' three-month forecast balance easing to +3% from +14% in December.
“House price growth has come under growing downwards pressure this year as supply exceeds demand," said Knight Frank's Tom Bill. "Buyers are no longer navigating the choppy waters of double-digit inflation but they are swimming against a gentle and unpredictable current. We expect low single-digit house price growth this year that will hopefully surpass the rate of CPI inflation.”
A robust start
The start of the spring selling season "has been robust", Taylor Wimpey reported yesterday, citing good mortgage availability and improving affordability. The company's year to date net private sales rate stands at 0.75 per outlet per week, up 12% year on year.
The company welcomed the government's reintroduction of mandatory housing targets: "we are optimistic that these changes to the planning system should help unlock the land needed to support homebuilding in coming years, placing the land market on a similar footing to that of 2012 to 2019 when land conditions were supportive of industry growth."
Anna Ward has a new update on the London new homes market over on the Intelligence Lab. Both needs-driven domestic buyers and overseas investors alike are targeting build-complete stock in London given rapidly changing market conditions. The off-plan new home sales market has continued to face challenges in recent times amidst significant global political and economic headwinds, meaning purchasers are less willing to commit to purchasing a property that is still under construction, instead wanting to wait until greater certainty levels emerge.
In our latest survey of over 50 volume and SME housebuilders, a third of London-based respondents said they expect reservation volumes in the capital to outperform 2024 this year, with nearly half predicting sales will be stable in 2025. A fifth anticipate lower sales.
In other news...
US and UK in talks on trade deal that could spare Britain from tariffs (FT).