Investors will see fruit from property redevelopment firms this year, says Premier’s top rated manager Alex Ross.
Sought after central London properties remain hugely expensive and opportunities to own them are limited. But Ross has been backing several companies which aim to turn second tier sites into prime property over the last couple of years, and thinks many will see the benefit of their investment during 2013.
‘From now on in central London the key is not just to be owning an asset and sitting on it hoping the value goes up, from market growth, the only real way from here on in to create value in London is through active management,’ he said.
Ross highlighted Land Securities, which at 8.55% is the biggest holding in his Premier Pan European Property Share Fund, as a good example in this space.
The majority of its central London exposure is not through a ‘dry asset’ like good tenants on a decade-long lease, as positive as this is it lacks the same growth potential as another part of Land Securities’ business, the redevelopment of land around Victoria.
‘That’s attractive and not overvalued because construction costs are very low, and those costs have already been agreed. You can get a very good return on redeveloping assets.’
Redevelopment companies targeting London are doing especially well out of the city’s allure for the technology, media and telecommunications (TMT) sector.
‘London is doing a very good job of reinventing itself, and it always has through history. For the next cycle, the tenants that want to take space are not the financial services, it’s the TMT sector,’ he explained, adding that for technology and media companies London is the place to be alongside San Francisco and New York.
Outside of the capital, developers taking shopping centres with ‘all of yesterday’s tenants’ and renegotiating leases with ‘the 25 or so UK retailers which are expanding’ will do well.
Ross built a position in LXB Retail Properties at 90p a couple of years ago and has seen its share price rise to £1.18 on the back of its success in redevelopment. He is still expecting to see some ‘very healthy asset value growth’ from the firm.
‘LXB have built up a pipeline of a dozen or so sites around the UK and we are getting to the stage where we are going to see growth. On one of those sites they had already pre-let one million square feet before they had even built it,’ he said.
‘Those are secondary locations, if you can pick the right sites and understand where retailers want to be there is good demand.’
He also likes a company called Helical Bar which is run by a man called Mike Spade and is ‘extremely well positioned’ in Ross’ view.
The Premier Pan European Property Share fund has returned 27.27% over the last year compared to 20.67% in the benchmark FTSE AW Europe (Dev)/Real Estate Investment Trusts and Svcs TR.