Land Securities banks on London developments

The full-year results reported an impressive jump in the net asset value (NAV), powered by a 10.3 per cent valuation rise across the group's central London and UK retail dominated portfolio. However, chief executive Frances Salway expects to see a "ripple effect" in future property values, believing that capturing London's anticipated strong rental growth through development offers the "best value" going forwards.

Land Securities has already started three schemes in the West End, while plans for the "Walkie Talkie tower" in the City of London are crackling back into life. "We're in active discussions with potential partners and hope to start [construction] early next year," said Mr Salway. The London development pipeline now totals 4m square feet and he says that Land Securities has the firepower to make further investments as opportunities present themselves.

Outside of central London, falling rental values remain a concern. Overall, like-for-like rents fell 6 per cent in the period, though only 0.3 per cent of this decline was registered in the second half. Mr Salway said that in the retail business, two-year rent free periods had been the norm for the last 18 months, but incentives were reducing on units where retailers were competing for space. Strong pre-letting activity means the development of its Trinity shopping centre in Leeds is expected to start this year.

Strip out the valuation impact, and underlying profits fell 20 per cent to £252m - that was impacted by nearly £1bn of disposals in the period. The proceeds were largely used to repay debt, meaning that gearing is now within the target range. Broker Nomura forecasts a 2011 NAV of 777p.

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