London’s West End property giants Shaftesbury PLC (LSE:SHB) and Capital & Counties (LSE:CAPC) (Capco) Properties PLC edge towards a £3.5bn merger looks to be a further sign that the area is thriving in the post-pandemic period.
The combined real estate investment trust (REIT) would own a portfolio of around 2.9mln square feet of retail, hospitality, office and residential space in top-notch London destinations including Covent Garden, Carnaby Street, Chinatown and Soho.
Capco had acquired a 26.3% in Shaftesbury during the period of a pandemic lull from Hong Kong billionaire Samuel Tak Lee, with the announcement over the weekend seemingly a consolidation of their property interests n the area, which will be split 53% to 47% in favour of Shaftesbury.
Confirmation of talks comes just weeks after Great Portland Estates (LSE:GPOR) announced a handful of new commercial office and retail acquisitions and property leases in the West End.
Now seems like a good a time as ever for the West End of London, but could anywhere else in the capital follow?
Why the West End?
London’s West End, according to Chris Spearing, an analyst at Liberum, benefitted first in the post-pandemic period due to a high percentage of buildings listed or within conservation areas.
A conservation area is usually a region of special architectural or historic interest, meaning it’s difficult to make any changes to the landscape or the buildings that fall within a set zone.
This is an attractive proposition for long-term investors, Spearing adds, with properties in the area often retaining value even during periods of economic downturns, such as the pandemic.
Having a vast amount of amenities “that are on your doorstep” as well as a “diversified occupier base” means businesses actively want to move into the area, and those renting the properties benefit from that demand.
That would explain Great Portland Estates (LSE:GPOR) swooping in just as the Covid lockdowns seemed a thing of the past, with an expectation that the West End will be the first to see footfall in the area rise, as well as workers returning to the office.
Of course, footfall across the whole of London will be impacted by the Elizabeth Line, which is set to make its way across London from 24 May.
Importance of the Elizabeth line?
Stretching more than 100km from Reading and Heathrow in the west to Shenfield and Abby Wood in the east, the new line is expected to generate an extra 200mln passengers each year.
Given it stretches across the entirety of London and beyond, making it more accessible to get into the centre of the capital from the outskirts, it begs the question of where could be next after experiencing a flurry of commercial property acquisitions.
REITs that manage property which fall on the line, such as areas around Paddington, Tottenham Court Road and Liverpool Street are in line for a major boost, say experts.
London’s tech belt
London’s tech belt, or tech city, is an area of East London with a cluster of high-tech companies, with Facebook, Google and Microsoft some to have invested in the area previously.
According to Spearing, there are growth opportunities around the area, as well as low rental levels and good underlying stock of property.
Spearing mentions Derwent London (AIM:DLN) as an example of a firm that has “been very successful over a very long period of time in repositioning its assets.”
In doing so, Derwent reflected how occupiers’ needs changed, with more “willing to move to what people might have perceived as marginal locations 10 to 15 years ago.”
The addition of the Elizabeth line will only see more companies venture outside of the West End due to travel across London being significantly easier and quicker.
East or West?
Undoubtedly the West End was the first to experience the commercial and office property boom given its large amount of conservation areas, along with generally good infrastructure and diversified markets.
With that in mind, the West End should always continue to thrive in that sense, with the Elizabeth line opening even more opportunities for the W postcode area.
However, don’t rule out East London as the next area to see an upturn in commercial property acquisitions as transport links and investment in the area makes it an increasingly attractive proposition.