Anyone feeling bleak about today’s depressed property values should take heart from this week’s cover star: Roger Madelin of British Land.
Madelin is a former chief executive of Argent and drove the partnership’s redevelopment of London’s King’s Cross. Today, the area is a benchmark for successful brownfield regeneration, but it wasn’t always so.
Writing recently in the journal of the Cambridge University Land Society – an organisation in which he serves as an honorary vice-president – Madelin recalls the various valuations pinned on King’s Cross before its eventual transformation was complete.
“The 58.5 acres of the King’s Cross development over the first decade of the 2000s was ‘valued’ at £120m then £200m then (informally) at almost £600m and in 2008 by one professional firm at £58m,” he wrote. “It has of course subsequently turned out ‘OK’ for the landowners and investors despite that!”
Like that other elusive quality – beauty – the value of a thing is in the eye of the beholder, or perhaps more accurately in the pocket of the buyer. Any value assigned to property outside the boundaries of an actual purchase is, inescapably, somewhat related to a wet finger held in the air.
As Madelin also argues, the gummed-up state of Britain’s planning system is making it harder and harder to gain planning permission to build anything new; therefore, land with permission – or indeed land with a building on it as long as it has some future potential – ought to be worth more and more, on the basic economic principle of restricted supply.
Of course, there is also the cold mathematics of demand. Property values exist in a world where investors are not forced to put their money into property when other assets are more attractive. Hence the dependent relationship between yields and Bank of England base rates.
At Mipim this week, Tritax Big Box boss Colin Godfrey was one of many property executives looking forward to easing rates and an eventual rebound in values.
“When we think about the very low levels of [deal] volumes we’ve seen in recent times, there is a massive amount of capital waiting to get into the market,” he told me over a coffee just off La Croisette. “The trigger is movement in the 10-year gilt rate, the risk-free rate that people are looking to. And the expectation for me is the potential for a small amount of yield compression in the latter part of this year and probably more meaningful yield compression in 2025.”
That compression – a narrowing of expected yield at a given rent, equating to a rise in asset value – would be warmly welcomed by anyone who has seen asset values steadily erode over the past two years.
Talking, naturally, about logistics, Godfrey gives an upbeat assessment. “[The UK] has a strong story in terms of rent potential, we haven’t got any real issues in the big-box space with affordability of rents and I think you’ve got a strengthening investment market. So actually, the stars could start to align.”
I’m not usually partial to Mipim’s ubiquitous rosé wine, but I’ll drink to that.
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