commercial property, Land Securities, Mitchells and Butler, Simon Nixon

Has the commercial property market peaked?

25.05.2007

by Simon Nixon

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This has been a momentous week in the commercial property market. First, Land Securities revealed that the values of some of its buildings fell over the last year. This wasn’t entirely unexpected. CEO Francis Salway had been warning that prices were unsustainable for a year. But still, after four years of rising prices, it came as a shock.

The second big event was the announcement by pub group Mitchells & Butlers that it was considering putting all its property into a joint venture with property tycoon Robert Tchenguiz. This was something M&B boss Tim Clarke had always previously ruled out. But it has become too hard to resist. Even after M&B’s shares had been inflated by bid speculation, the stockmarket still seemed to be valuing the company’s freehold property well below the price it could fetch on the open market.

Personally, I would have preferred to see M&B go further and spin out the property into a real estate investment trust. Clarke says the market for these is still unproven. We’ll find out soon enough: Vector, a specialist hotel property group is due to float on the stock exchange next month. But either way, M&B has blazed a trail others will be sure to follow. I wrote a few weeks ago that commercial property may have peaked, but you could still make money from it by buying shares in stocks with property portfolios such as Tesco, Marks & Spencer and Whitbread. That is even more likely now.

Simon Nixon is executive editor of Breakingviews.com