West End property giants Shaftesbury and Capco have announced they are exploring a merger that would create a portfolio with a combined value of £3.5B in a move that would see Shaftesbury chief executive Brian Bickell retire after 36 years at the company.

Following a report on Sky News, Shaftesbury and Capco confirmed on Saturday that they are in talks about a merger.

The possible merger would create a REIT focused on the West End of London with a portfolio of about 2.9M SF of lettable space located in high-profile destinations, including Covent Garden, Carnaby Street, Chinatown and Soho. Capco owns Covent Garden, with Shaftesbury owning Carnaby, Chinatown and multiple properties in Soho.

The combined ownership would comprise about 1.8M SF of retail and hospitality space, together with office and residential accommodation of about 1.1M SF.

A merger of the two companies has been on the cards since Capco bought a 26% stake in Shaftesbury for £436M in May 2020 from Samuel Tak Lee.

Under the proposed terms of the possible merger, Shaftesbury shareholders, excluding the Shaftesbury shareholding owned by Capco, would own 53% of the combined company and Capco shareholders would own 47% of the combined company.

Norway’s sovereign wealth fund, a major shareholder in both companies, has said it will support a merger.

The combined company would be led by Jonathan Nicholls as chairman and Ian Hawksworth as CEO. Situl Jobanputra would be the chief financial officer and Chris Ward would be the chief operating officer. The board would have non-executive representation from both companies, with Richard Akers as the senior independent director.

An executive committee, with equal representation from the existing Shaftesbury and Capco leadership teams, would be responsible for the day-to-day management and operation of the combined company. Capco’s Michelle McGrath would be responsible for the combined Covent Garden portfolio, Shaftesbury’s Andrew Price would be responsible for the Carnaby, Chinatown and Soho portfolio, and Samantha Bain-Mollison would head group leasing.

After 36 years at Shaftesbury, including 11 years as CEO, Brian Bickell will retire on completion of the transaction. Executive Directors Simon Quayle and Tom Welton, who have also been with the company for more than 30 years, will also leave the business. Henry Staunton, chairman, and Jonathan Lane, non-executive director, will retire from the board of Capco on completion.

Both companies were hit hard by the effects of the pandemic, which saw tourists and office workers absent from the West End. But as the omicron variant receded, occupancy and income have picked up at both firms.