It was no surprise this month when FTSE 100 property company British Land (LSE: BLND) said the coronavirus and lockdown helped wipe out about £1bn from its property portfolio. The value of retail property, after all, is not likely to be at its highest at the moment. However, longer-term trends and issues may have an even greater impact.
British Land said that for the 12 months to March, about 10% of the value of its property portfolio – some £1.1bn – was wiped out. A decline in its retail developments mostly accounted for this.
British Land owns large retail park, store and shopping centre properties that are naturally taking a hit right now. According to the company, retailers on its estate paid just 45% of rents in March. As CEO Chris Grigg said: “It’s not like retailers are having an easy time right now.”
Though the reopening of non-essential stores should help this problem over the next few months, Mr Grigg has already said he doesn’t “expect it to be any easier” by the next payment deadline in June.
Interestingly, the company received about 97% of its rent from office facilities, another area we may have expected to lapse given so many people have been working from home.
Long-term problems for British Land
Of far greater concern for me, however, is the potential fundamental shift we may see in the way people work and shop after lockdown ends. At the very least, there will be a lag between stores technically being reopened with strong social distancing measures limiting capacity and people feeling like there is no longer any risk. It could easily be a year before retail as well as socialising and working) start to look like they used to.
And this doesn’t take account of a bigger shift in culture. Working from home, for example, has been a necessity that has many firms thinking it should be a permanent fixture for their businesses.
Lockdown has shown it is possible to do, while both employees and employers are incentivised to do it. For a company, travel and office rental costs will both be lower, while employee satisfaction could be up. Well, who doesn’t prefer not having to commute?
These fundamental shifts could easily mean less office space is needed, and so British Land may just see a long-term downshift in its office portfolio too.
Similarly, the increase of shopping online during lockdown may well shift many consumers towards e-commerce. This is an area that British Land has already warned was changing the nature of its portfolio. If more people continue to shop online, warehouse space will be needed over the large retail space where British Land makes its money.
If it can adapt, it is possible that the current share pricemay be a bargain, but for me there is just too much uncertainty in the market right now. I will, however, be watching this space.