Britain’s runaway commercial property market has peaked, the head of Britain’s biggest property company has warned.

The warning from Francis Salway, the chief executive of Land Securities and in charge of some £14.8 billion worth of assets, will send shivers through the UK commercial property market estimated to be worth about £710 billion.

Despite upping the value of Land Securities by £1.9 billion over the year to end-March, Mr Salway said: “The year end valuation of our investment portfolio showed a slowing in the rate of growth in capital values in the second half of the year. This is consistent with our view that the yield re-pricing of UK property assets is close to having run its course.”

Over the past three months the heads of the next two biggest UK property companies, Stephen Hester of British Land and John Richards of Hammerson, have voiced fears about over-priced so-called sub-prime retail assets such as high street shops in provincial towns, worrying that investors could soon be stung by price falls.

BACKGROUND

• Reits bring succour to a jaded market

• Land Securities calls top of the property market

• Land Securities to start year as a Reit

Comment: On the roof

It would be sensible to pay attention to the view from the top of the property industry

Related Internet Links

• Land Securities company information

• Land Securities loses £1.28bn on property values

• Land Securities forecast

Demand for sub-prime retail has pushed the gap in yields – the rental income as a proportion of capital value paid – to a record low between sub-prime and prime such as shopping centres and big high streets Oxford Street, Bond Street and Regent Street.

Today Mr Salway confirmed those worst fears. He added: “Indeed, lesser quality property investments in the retail sector have seen weaker yield pricing and a fall in values over the past six to nine months.”

Shares in Land Securities, now Britain’s largest Real Estate Investment Trust, fell 3 per cent to 1955p, just off a low for 2007. Hammerson and British Land were also among the heaviest fallers in the FTSE-100.

The company has however been preparing for a correction in the UK commercial property market for the past couple of years by selling out of sub-prime retail at the top of the market, pre-letting huge new office developments and building revenue from outsourcing deals via its Land Securities Trillium arm.

End of year results bore testament to that strategy with revenue profit, a core measure of underlying pre-tax profit, up 0.2% from £391.3 million to £392.2 million.

Overall pre-tax profit fell 16 per cent to £1.98 billion after the effects of one-off gains from selling in 2005 the company’s half share in the Telereal joint venture which owned BT assets.

The full year dividend rises 13.5 per cent to 53p per share.

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