British Land says low appetite for property purchases hits valuations

By Aby Jose Koilparambil

(Reuters) - Property owner British Land Co said on Wednesday the rapid rise in borrowing costs had reduced investors' appetite for property acquisitions, leading to a fall in valuations in the first half.

Aggressive interest rate hikes to tame inflation and deepening recession worries are seen snuffing out a tentative recovery in the UK commercial property sector from pandemic lows.

The owner of London office spaces such as Broadgate, Regent's Place and Paddington Central, British Land said valuations of its largest portfolio - office assets - fell 2.7% during the half-year period.

Shares of British Land fell more than 2% in morning trade.

British Land joins its biggest peer Land Securities in flagging a hit to valuations. Landsec also slowed the pace of its re-investment plans due to challenging economic conditions, after reporting a first-half loss.

British Land was optimistic about demand for its retail parks because of affordable rents and suitability for fulfilling online retail. It is the largest direct owner and operator of retail park assets in the UK.

It said retail parks, 60% its retail portfolio, are increasingly preferred by retailers tackling tighter margins and cost pressures amid a deepening cost-of-living crisis in the UK.

"Retail parks are seeing something of a renaissance as trading habits revert more broadly to pre-pandemic levels, and as more retailers embrace the omni-channel offering," Interactive investor analyst Richard Hunter said in a note.

British Land's half-yearly loss after tax came in at 34 million pounds, compared with a profit of 370 million pounds a year earlier.

It reported a 13.3% rise in underlying profit to 136 million pounds ($161.5 million), thanks to strong leasing in the six months to Sept. 30, including Facebook owner Meta's lease renewal at one of its London properties.

The FTSE 100 firm said EPRA (European Public Real Estate Association) Net Tangible Assets, a key measure that reflects the value of its buildings, fell 4.4% to 695 pence, as of Sept. 30.

($1 = 0.8420 pounds)

(Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Rashmi Aich and Elaine Hardcastle)