In a hot London property market, finding new investment opportunities that offer a sensible return is tough. Mr Courtauld is also very wary of what he calls "late-cycle development". For the time being, though, investor appetite for real estate in central London remains strong, while a shortage of existing and new space should keep yields low and push rents higher. It's also worth noting that building new office space takes two or three years, a process not helped in the West End by an under-resourced planning department. In the borough of Westminster, where most of the West End lies, officials have to wade through around 12,000 planning applications every year.
Is the market for property stocks starting to become a little frothy? On conventional metrics some property companies look fully valued. There is a problem here, though. Using conventional valuation processes in an unconventional market, dominated by the availability of extremely cheap money, may be of limited value. Shares in the London property companies have headed the same way as shares in the major housebuilders and now trade well above net asset value.
Supporting this uplift is the continued imbalance between strictly finite supply - 70 per cent of the West End lies within a conservation area - and a globalised pool of property buyers and renters. Great Portland still has plenty of projects to develop, notably the ex-Royal Mail site at Rathbone Place, acquired in 2011 for £120m. Interestingly, the company has reversed its previous reluctance to engage in residential development, with the site expected to include 162 flats. Another reason for Great Portland shareholders to be cheerful is Crossrail, which will make sites like Rathbone Place even better connected.
Set against this is the prospect of higher interest rates. Although these are not immediately damaging in themselves, they could affect sentiment well in advance. A stronger currency might also sap demand for property among overseas investors. But these still look to be some way off.
Great Portland boasts committed development space of 439,000 square feet, with another 600,000 sq ft in the pipeline, mainly at Rathbone Place. The group's current loan-to-value ratio is 26 per cent, and analysts at Jefferies reckon adding in £400m of capital expenditure takes this up to 36 per cent. That's arguably too high for this stage of the cycle, although it remains within a 20-40 per cent target range. Jefferies expects book value of 558p in March 2014 and 633p a year later, compared with a current share price of 605p. That gives some room for advancement - but perhaps not enough to justify buying in at these levels.
