BL to launch flexible workspace offer

British Land is to introduce a branded flexible workspace offer later this year and has completed a first flexible letting on its estate as it reacts to the increasing trends towards shorter leases and co-working. The announcement came as BL posted full year results characterised by a strong leasing run and some notable sales.

Reporting what it termed "good results" in an "uncertain environment" BL in particular pointed to a healthy pipeline of leasings in progress and a number of standout sales, including its 50% stake in City landmark the Leadenhall Building which will complete shortly, as well as a second half pick up in valuations.With regards to its offices business, where "the result of the referendum created greater uncertainty", BL was bullish saying occupiers continued to commit, but often after "longer and more thoughtful decision making processes".Leasing performance here was strong, with space let or terms renewed on 279,000 sq ft in the year, on average 1.4% ahead of ERV.It has 700,000 sq ft under offer or in advanced negotiations across its development pipeline.It said its focus on London remains and it expects the capital to continue as a leading global city reflecting its "diverse pool of intellectual capital and reputation for innovation, as well as its culture, language and strong regulatory and legal framework".BL said it was focused on providing space which reflects the evolving way people are working and blending their work and leisure time.It said its newest spaces are more flexible, catering to the demands of big and small companies with the option of shorter lease term arrangements.

This year, it said it will be launching a branded flexible workspace offer which enables it to capture "incremental demand from the increasing number of small businesses taking space in London as well as meeting a growing need amongst our existing occupiers for flexible space for specific projects and teams". It said it had already agreed a first flexible workspace letting at 2 Finsbury Avenue, extending its relationship with an existing occupier at Paddington Central for its digital team.BL did not discuss the move further but it is understood the first deal has been signed for a two year term on 25,000 sq ft. BL will formally launch the branded flexible workspace offer in June. It will be branded and focus particularly on operations, notably satellite operations, with 20 to 70 employees needing space. Those business will be able to brand the space if they wish to and will pay a flexible office fee including for the services. BL aims to start off with a small number of managed solutions at its campuses and then grow the offer and has begun fitting out 80,000 sq ft for the offer at Broadgate and at its Ealing Shopping Centre. Lucinda Bell, chief financial officer, said: "We see including flexible workspaces at our campuses very much as providing another amenity. We can also access incremental demand from SMEs, which is a growing part of demand for space in London and deliver increased returns. Introducing the space initially will be a good way of finding out about the market and delivering good returns."BL posted underlying profit up 7.4% to £390m (2015/16: £363m) but pretax profit was down to £195m (2015/16: £1,331m) driven in particular by a 1.4% fall in the valuation of its property portfolio.There was an -0.4% slip in EPRA NAV to 915p but EPRA NAV was up 2.7% in in the second half.IFRS net assets are at £9.5bn (2015/16 £9.6bn).Chris Grigg, chief executive, said: “We are reporting a good set of results today despite an uncertain environment over the last 12 months. We are particularly pleased by the increase in underlying profits, by our strong leasing performance across the business and by the very successful sales we have made. The increase in valuations in the second half is also better than many expected six months ago."These results reflect the continuing execution of our strategy, providing space that responds to changing lifestyles and really fulfils customers’ needs. We expect to be operating in an uncertain environment for some time; in this context we will benefit from the resilience of our business, the quality of our portfolio and the strength of our finances."We also look forward with cautious optimism as we believe that we can generate incremental returns by allocating capital to development opportunities we have created, whilst keeping risk at an appropriate level and maintaining flexibility to respond to changes in our markets.”BL announced a final quarterly dividend of 7.3p (+3.0%), bringing the full year to 29.2p (+3.0%). It is proposing a 2017/18 full year dividend of 30.08p per share proposed up 3%.The period has seen a "modest reduction in valuation, improving performance in the second half and continuing ERV growth", BL said.In terms of portfolio valuation BL reported value at -1.4% with a plus 1.6% gain in H2. There was a 15 bps yield expansion in the year.Within this the offices valuation was -0.7% and ERVs +0.5%. Retail valuation was -1.8% while ERVs are +1.6% with multi-let +2.4%.BL pointed to strong leasing and operational performance in the period with 1.7m sq ft of lettings and renewals across the portfolio, 8% ahead of ERV, adding £22m of rent. Occupancy was at 98%, with average lease lengths of 8.3 years.There were 1.3m sq ft of retail lettings and renewals, 10.8% ahead of ERV. BL said it was letting more space on better terms, to a broader range of occupiers than a year ago.There were 279,000 sq ft of office lettings and renewals, 1.4% ahead of ERV, letting up standalone developments.BL said it is under offer or in advanced negotiations on a further 700,000 sq ft at its campuses, including 310,000 sq ft pre-let of proposed redevelopment of 1 Triton Square, Regent’s Place. It said there is a further 850,000 sq ft of discussions ongoing.BL said it had £2bn of gross capital activity and is well positioned to exploit optionality in its pipeline.There was  £1.5bn of disposals, 9% ahead of valuation, including the sale of a 50% interest in The Leadenhall Building for £575m which is expected to complete post year end in May 2017.Retail disposals of £881m were secured at an average yield of 4.3%; includes Debenhams, Oxford Street for £400m and £226m of superstore sales reducing weighting of superstores to 4% of the total portfolio.There were £195m of acquisitions focusing on adjacencies. Including a £292m capital spend, there was a net divestment of £1.1bn.The speculative development commitment is below 4% with a £1.7bn pipeline across a range of uses benefiting from 2.3m sq ft of planning consents secured in the year, plus Canada Water.BL also pointed to an improved financial position with continued access to low cost finance.The LTV is at 29.9% (March 2016: 32.1%) and the weighted average interest rate at 3.1% (March 2016: 3.3%). LTV is at 26.9% and the weighted average interest rate at 3.4% pro-forma forthe  sale of The Leadenhall Building.Based on current commitments, the group has no requirement to refinance until early 2021.Bell said the group's sale of 10% of its portfolio in the period had underlined the strength of overseas appetite for investment in prime UK assets. "We have seen the economy strengthen following the initial response to the EU Referendum vote. But also the measures we have taken have increased and underlined the resilience and flexibility in the business."