Omicron brought down the curtain on the West End. But visitors and workers are returning, said landlord Shaftesbury. An upbeat statement on Friday set the scene for an extended period of uninterrupted trading. Time for investors to pile back in?
So far, Shaftesbury’s shares have clawed back little more than a third of losses racked up in the first eight months of the pandemic. They are trading at a 30 per cent discount to the pre-Covid net asset value. That looks inexpensive, given that vacancy rates are falling and property valuations have started to recover. The latter rose 5 per cent in the six months to September.
True, investors’ propensity to return will be dented by rising inflation and interest rates. Rising interest rates, which have a knock-on effect on bond yields, are a negative for property valuations. Property’s reputation as a hedge against inflation is not fully deserved. Real rents across the board have fallen by an average of 0.6 per cent a year over the past 51 years, according to Liberum. Inflation rises have tended to coincide with downturns in UK commercial property values.
But Shaftesbury offers some comfort. Its borrowings are fixed long term; the weighted average debt maturity is eight years. Moreover, landlords’ resilience to inflation depends on their pricing power. Shaftesbury’s position is improving. The vacancy rate has fallen below 5 per cent for the first time in the pandemic. Demand should be sustained, so long as no new variant or act of terrorism materialises to blight the West End,
This year’s long-awaited opening of the Elizabeth underground line — expected to bring tens of millions more visitors to the West End every year — should be a boost. Shaftesbury’s tenants will be a short walk from the new Tottenham Court Road and Bond Street interchanges. That will help the landlord keep this show on the road.
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