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.

WHEN one of the UK’s biggest commercial landlords pulls the plug on a number of its central London properties, it raises eyebrows across the sector. Does this mean it’s calling time on the capital, or is it just its own strategy that is being refined?

With Landsec (LAND) it looks like both could be true. Having been a big player in the London market, the company has switched strategy; selling its central London offices and reinvesting in retail and leisure developments up and down the country.

As well as a 75% stake in MediaCity in Salford, Greater Manchester and the acquisition of U+I, which has development land in the city, for a combined total of more than £600 million, Landsec has invested £172 million into a further 25% of the Bluewater shopping centre in Kent.

The company is also in talks with fellow commercial landlord British Land to broker an £800 million asset swap deal that, if it comes off, would see Landsec take British Land’s 50% stake in the Meadowhall shopping centre in Sheffield, in return for 10 of its retail parks.

So why the shift into shopping centres when retail landlords have spent years in the doldrums? After all, commercial property investors won’t need reminding about shopping centre landlord Intu, which fell into administration back in June 2020.

Well, since he took the helm in April 2020, chief executive Mark Allan has indicated that he sees value in physical shops and is pursuing a strategy of investing in big shopping centres. Regional shopping centres and retail outlets still only make up around 15% of Landsec’s £11 billion portfolio, with the majority of its assets still in London office space.

Whether Allan’s strategy is ahead of the curve and he proves to be a shrewd bargain-hunter remains to be seen, but the latest Bluewater deal, in particular, shows how retail centre values have fallen. Back in 2014 Landsec paid £656 million for a 30% stake in Bluewater.

Times were tough for retail landlords and their investors long before the pandemic struck, as Intu’s demise shows, coming just three months into the first UK-wide lockdown. However, Landsec sees value to be had and seems to have a sharp strategy in place. It posted its first profit of the pandemic period thanks to a recovery in office and retail park values and its latest investment in Bluewater suggests the company believes the retail sector has a brighter future.

Its acquisition trail is also accompanied by a new leasing strategy aimed at attracting “digitally native” brands. Shorter and more flexible leases are included; some of which will be “highly flexible”, ranging from as little as two days, to appeal to digital brands and encourage them to take physical space at Landsec shopping centres. These will be rolled out at Bluewater in the summer and at St David’s in Cardiff, in the autumn.

Expect to hear more on that when Landsec posts its full-year results on Tuesday next week.

More on Landsec.

Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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