The weakened sentiment about central London’s property market and the region’s glum economic prospects following the Brexit vote is starting to bite for property counters, especially those placing their bets on the region’s residential market.
The latest casualty is London-focused Capital & Counties Properties (Capco), which announced on Tuesday that the value of its Earls Court estate fell by £200 million – from £1.4 billion in December to £1.2 billion as of June 30 2016.
The company says the downward move in property valuations at Earls Court in West London reflects “the valuers’ assessment of the weakened sentiment in the central London residential market following the EU referendum.”
Capco’s Earls Court project is a major residential development in west London covering 77 acres of land. The master plan includes the development of four residential villages with about 7 500 homes that comprises mansions, loft-style apartments and affordable housing. The property counter is developing Earls Court in a joint venture with transport operator Transport for London.
CEO Ian Hawksworth says although the last quarter has been characterised by uncertainty in the London market as a whole, the value of Earls Court will increasingly be realised in the years ahead, as it rolls out the development with a ten- to 20-year build-out period.
There are already market jitters that the UK’s imminent exit from the 28-member European Union, which is expected to take two years, might shift the country’s economy into a recession.
Since the referendum in June, Capco’s property valuers, Jones Lang Lasalle and CBRE, have taken a more cautious view of costs and growth in sales values at Lillie Square, the company’s high-end residential development at Earls Court.
Capco says it continues to make progress at the Earls Court site, with phase one of Lillie Square homes expected to be completed later this year, and 59% of the first tranche of phase two having been sold at prices that are 4% higher than in the first phase.
Given a slowing London residential property market, market watchers have been questioning the take-up of residential units at Earls Court and Capco’s ability to unlock development profits.
Hawksworth says London is a stable market, given its diverse economy and growing population. “London’s long-term economic and population growth trends are deeply embedded and we believe these trends will continue despite the result of the EU referendum.”
The London Stock Exchange- and JSE-listed company saw the value of its total property portfolio decline by 3.8% to £3.6 billion for the period under review. The other property in its portfolio is the flagship Covent Garden, a shopping and mixed-use precinct in central London. Since taking sole control of Covent Garden in 2010, Capco has repositioned it to introduce high-end retailers such as Ben Sherman, Chanel, Ted Baker, Burberry Brit as well as casual and fine-dining restaurants.
Covent Garden is valued at £2.1 billion and makes up more than 59% of Capco’s total property portfolio. The company has focused on leasing activity, as it has signed three leases at the property. The company says its target of growing its estimated rental value to £100 million by December 2017 (from the current £90 million) is still on track.
Capco’s stock, a long-time favourite for South African investors with an appetite for offshore markets, has been down by 24% in the past month on the JSE, along with other UK-focused property companies such as Atlantic Leaf Capital, Intu Properties and New Frontier Properties.
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Capco’s share price was down 4.29% on Tuesday.
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