U.K. Landlord Says the Economy Won’t Recover Until at Least 2022

(Bloomberg) --

The U.K. economy won’t recover to pre-virus levels for at least two years, according to one of the country’s biggest commercial landlords.

The outlook from Land Securities Group Plc is more pessimistic than a scenario outlined by the Bank of England last week -- which policy makers insist is not a forecast -- for the deepest recession in more than 300 years. The U.K. central bank expects the economy to recover all its lost growth by late 2021.

Land Securities, the U.K.’s second-largest real estate investment trust by market capitalization, wrote down its portfolio by 1.2 billion pounds ($1.5 billion) in the 12 months through March, as retail property values slumped. The landlord fell as much as 15.6% in London trading on Tuesday, the most since the result of the country’s vote to leave the European Union in 2016.

“It seems prudent to plan for more business failures and higher vacancy rates across our portfolio, in particular leisure and retail,” incoming Chief Executive Officer Mark Allan said in a statement. He will lead a strategic review of the business’s long-term objectives over the coming months.

The pandemic has caused a delay of as much as two months to construction of Deutsche Bank AG’s new headquarters in the City of London. Productivity on the site adjoining Moorgate rail station is currently at 50% and improving, and that will dictate the final completion date, Land Securities said in the statement. The German lender and the developer remain in close dialog on the property, the firm said.

The government lockdown accelerated the difficulties already plaguing the U.K.’s retail properties as shop owners struggle to compete with online stores like Amazon.com Inc. With many physical stores shut and customers urged to stay away, the landlord expects downward pressure on rents in the longer-term.

Fundamentally there is “too much retail property in the U.K. and we are going to see some of that repurposed,” Allan said in a telephone interview. “We may see what may have taken five years to play out, play out in the next 12 to 18 months.” The landlord has identified four sites in London where it could develop about 7,000 new homes, according to an analyst presentation on Tuesday.

An update on the strategic review is expected later in the year.

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