Commercial property

The West End commercial property sector is booming, but will East London soon follow?

London’s West End property giants Shaftesbury PLC (LSE:SHB) and Capital & Counties (LSE:CAPC) (Capco) Properties PLC are heading for a £3.5bn merger appears to be a further sign that the region is booming in the post-pandemic period.

The combined real estate investment trust (REIT) would own a portfolio of approximately 2.9 million square feet of retail, hospitality, office and residential space in key London destinations including Covent Garden, Carnaby Street , Chinatown and Soho.

Capco had acquired 26.3% in Shaftesbury during Hong Kong billionaire Samuel Tak Lee’s pandemic lull, with the announcement this weekend apparently of a consolidation of their real estate interests in the area, which will be divided by 53% 47% in favor of Shaftesbury.

The confirmation of the talks comes just weeks after Great Portland Estates (LSE: GPOR) announced a handful of new commercial and retail office acquisitions and property leases in the West End.

It looks like an all-time good time for London’s West End, but could anywhere else in the capital follow?

Why the West End?

London’s West End, according to Liberum analyst Chris Spearing, initially benefited from the post-pandemic period due to a high percentage of buildings listed or located in conservation areas.

A conservation area is usually an area of ​​particular architectural or historical interest, meaning that it is difficult to make changes to the landscape or buildings that are within a defined area.

It’s an attractive proposition for long-term investors, Spearing adds, with properties in the area often retaining value even during economic downturns, such as the pandemic.

Having a large amount of amenities “on your doorstep” as well as a “diverse occupier base” means that businesses actively want to locate in the area, and those who rent the properties benefit from this demand.

This would explain the arrival of Great Portland Estates (LSE: GPOR) just when Covid lockdowns seemed to be a thing of the past, with the expectation that the West End will be the first to see footfall in the area increase, as well as the workers returning to the office.

Of course, footfall across London will be impacted by the Elizabeth Line, which is due to run through London from May 24.

Importance of the Elizabeth line?

Stretching over 100km from Reading and Heathrow in the west to Shenfield and Abby Wood in the east, the new line is expected to generate an additional 200 million passengers each year.

Given that it spans the whole of London and beyond, making it more accessible to enter the center of the capital from the outskirts, it begs the question of where next could be after having experienced a wave of commercial property acquisitions.

REITs managing properties that fall on the line, such as areas around Paddington, Tottenham Court Road and Liverpool Street, are in line for a major boost, experts say.

London’s Tech Belt

London’s Tech Belt, or Tech City, is an area in east London with a cluster of tech companies, Facebook, Google and Microsoft having previously invested in the area.

Spearing says there are growth opportunities in the area, along with low rental levels and a good underlying inventory of properties.

Spearing mentions Derwent London (AIM:DLN) as an example of a company that “has been very successful over a very long period in repositioning its assets”.

In doing so, Derwent reflected the changing needs of occupiers, with more “willingness to move to what people might have perceived as marginal locations 10 to 15 years ago”.

The addition of the Elizabeth line will only see more businesses venturing out of the West End, as travel across London will be much easier and quicker.

East or West?

Undoubtedly, the West End was the first to experience the boom in commercial and office property given its large amount of conservation areas, as well as generally good infrastructure and diverse markets.

With that in mind, the West End should always continue to thrive in this direction, with the Elizabeth line opening up even more opportunities for the W postcode area.

However, don’t rule out East London as the next area to see a pick-up in commercial property acquisitions, as transport links and investment in the area make it an increasingly attractive proposition.