Songbird Estates' results buoy London property market

Canary Wharf developer announces solid rise in portfolio and earnings that beat market targets

PUBLISHED : Wednesday, 02 April, 2014, 5:47am
UPDATED : Wednesday, 02 April, 2014, 6:40am

The strength of London's property market was thrown into sharp relief last week as Songbird Estates, the main owner of the Canary Wharf estate in east London, said the estimated value of its buildings and planned developments had jumped by nearly half in the past year.

Songbird also announced full-year results and portfolio valuation that beat analyst forecasts.

Parts of central London have experienced sharp rises in property prices in recent months on the back of resurgent economic growth and demand from overseas buyers.

Songbird chief executive David Pritchard dismissed prospects of an unsustainable "bubble" in London residential property prices, pointing to population projections indicating the city would grow by 1 million people by 2020.

Long-term demand suggests ... a long-run underpinning of values
David Pritchard, Songbird Estates

While prices could fluctuate, "that long-term demand suggests that there will be a long-run underpinning of values", Pritchard said.

Yet the risk of overheating in property prices remains a concern to the Bank of England, which urged banks to consider the risk of interest rate increases when they approve mortgages and said it was preparing tools to rein in potentially dangerous lending.

House prices in England and Wales have risen by about 5 per cent over the past year and in London they are up 14 percent, according to Land Registry data.

Some commentators argue that parts of London's housing market are already in a bubble.

Songbird, also a part owner of the landmark "Walkie Talkie" skyscraper in London, said last week its net asset value - a key measure for property companies reflecting the value of their buildings and projects - had grown nearly 50 per cent to £2.66 billion (HK$34.3 billion) last year.

It said it was confident about the immediate prospects for the London real estate market.

"The development pipeline [of new buildings] is well positioned to take advantage of increasing demand and the prospect of a shortfall in supply of both prime commercial and residential space," it said.

The developer and property owner is best known for its commercial properties, but has been broadening the appeal of its Canary Wharf site beyond major banks and financial firms, with space dedicated to technology start-ups and plans for residential development.

Songbird is also developing a 20-acre site called Wood Wharf adjacent to Canary Wharf, whose cluster of skyscrapers built around London's former docks started springing up in the 1980s.

The new development consists of smaller office blocks, apartments and shops and the group said it was planning to devote more of the site to residential than it initially planned.

A new planning application, which is under consideration, included 2.5 million square feet of residential space out of a total 4.9 million, Pritchard said.

He said a number of factors had come together to produce the increase in net asset value, including more office space let, with occupancy rates rising to 97 per cent, the highest since the financial crisis, and more demand for retail space, where yields had compressed as property values rose and footfall - or the number of store visitors - had grown.

"But what's also in these results is the future," Pritchard said. "We put in planning applications last year for 9 million sqft.

"The market is recognising that long-term strategic move, both in terms of the space and the broadening out of the nature of the business - it's not just banks any more, it's moving towards residential."

Analysts at JP Morgan Cazenove said the group had delivered "outstanding full-year results", with net asset value per share coming in 26 per cent ahead of their expectation of £2.30.

Underlying pre-tax profit of £22.4 million was also ahead of expectations, they said.

Songbird said its adjusted net asset value per share increased 38 per cent to £2.90. The market value of its total portfolio rose 14.9 per cent to £6.57 billion.

Songbird counts Qatar Investment Authority and China Investment Corp as its major shareholders.