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Landsec Plans £1.7B London Office Sell-Off (With A Side Bet On More London Flex Space)

Landsec chief executive Mark Allan

Landsec plans to sell at least £1.7B of London offices in 2022 and 2023 as it recycles £4B capital in the hunt for better returns in the UK regions.

As a side bet, Landsec is also planning to grow its Myo flexible workspace office offer to six locations by 2024. Launched in 2019, the brand has two hubs in Liverpool Street, EC2 and Victoria Street, SW1.

The London office sell-off — which could extend beyond the £1.7B indicated by the company during a capital markets briefing this week — will fund a dramatic shift in Landsec’s focus away from a 69% tilt to London offices (measured by value). The medium-term expectation is a reduction to 55%-65% London offices balanced by rapid growth in urban mixed-use schemes, with the early opportunities focused on £2B worth of recent acquisitions in Manchester.

Urban mixed-use will grow from 8% of the portfolio today to 20%-25%. The Manchester acquisitions at MediaCity and, via a subsidiary’s acquisition of U+I, at the 24-acre Mayfield site, doubled the pipeline to nearly 9M SF.

This includes 7,000 residential units, 2.9M SF of office space and nearly 1M SF of leisure and retail, with the Manchester schemes ready to start on-site in the next 14 months.

“We’re disposing of assets that we can’t do a lot more with, and whilst this is a reduction in the portfolio in London it is not a decision to exit London," chief executive Mark Allan said.

"It is more about us being able to invest in London for the returns we’d like, and we see better value in regional mixed-use projects. The meaningful action [in the disposal programme] will be in 2022 and 2023.”

Asked if disposals could go beyond the current programme, Allan said: “We have to be able to adapt to changing market positions, so if we see more opportunities such that maybe we want to recycle more capital, then it’s a really good discipline.”

However, he said he did not anticipate the need. “We have plenty to do already,” he said. 

The mixed-use programme involves potential capital expenditure of £1.5B over the next five years, with 20% profit on total development cost.

Work on the 319K SF first-phase office scheme at the 2.5M SF Mayfield development is expected to start on-site by Q4 2022. Landsec anticipates £400-£600M capital expenditure at Mayfield over the next five to six years with an ungeared internal rate of return of 11%-14%. Around 1,500 homes and 1.5M SF of offices are planned.

Salford’s MediaCity development will be next out of the traps, with a first phase of the 1.7M mixed-use scheme due to start on site in 2023 for 2025 completion. 

Further down the pipeline come Morden Wharf, Greenwich Peninsula, where 1,500 homes are planned, and Cambridge Northern Fringe East where a £3B residential and life sciences-led masterplan will transform 120 acres. In London projects include mixed-use at the former Lambeth Fire Station, and at Southwark.