UPDATE: UK Retail Rents Starting To Rise In Prime Locations

British Land PLC (BLND.LN), one of the U.K.'s biggest retail space landlords, Tuesday said there are signs that renewed demand from big retailers is pushing up rents in the sector after many companies put their expansion plans on hold during the financial crisis and resulting economic downturn.

However, the recovery is restricted to the prime retail property sector such as out-of-town retail parks, and not town center properties which remain mired in a downturn.

"Retailers are taking a longer-term view. They've decided they need new space to drive sales long-term and they're looking to be in the best locations," British Land Chief Executive Chris Grigg said.

The retail sector has been hit hard by the economic downturn and retailers are still warning that the outlook is uncertain due to the fragility of the U.K.'s economic recovery and impending tax rises and public sector job losses due to government spending cuts.

During the downturn, large retailers like the national supermarket chains have continued to perform well, but many smaller retailers have gone out of business. That has created a widening difference between retail property values and rents in prime out-of-town and edge-of-town shopping locations and values and rents in the U.K.'s high streets.

"In a number of our retail schemes, we saw good demand from leading retailers including Best Buy, H&M, New Look and Next," British Land said. "Overall we agreed new lettings and renewals on nearly 500,000 square foot of space, 80% of which were on long-term leases."

Grigg highlighted a deal to let 47,000 square foot of space to the U.S.-based electronics retailer Best Buy, which is making a push into the U.K. He said the site, in Rotherham, Yorkshire, was an example of a retailer seeking prime locations -- the site offers good access, a strong combination of retailers to attract shoppers to the park and a dominant location in that part of the country.

The company's retail tenants include some of the U.K.'s biggest retailers, including grocers Tesco PLC (TSCO.LN) and J Sainsbury PLC (SBRY.LN), department store operator Debenhams PLC (DEB.LN) and home improvement stores Homebase, owned by Home Retail Group PLC (HOME.LN) and B&Q, owned by Kingfisher PLC (KGF.LN). About 65% of its current portfolio is in retail, and 85% of that it considers to be prime out-of-town sites.

The company said aggregated Estimated Rental Value -- the open market rent that a property can be reasonably expected to attain given its characteristics, position and market conditions -- rose 0.1% in the three months to Sept. 30.

British Land said it is progressing over 850,000 square feet of new retail developments to take advantage of the shortage of prime retail space supply, renewed demand and rising rents. It is additionally already committed to four superstore extensions and the building of a second phase of a retail scheme in Zaragoza, Spain.

Last week, peer Land Securities PLC said it had commenced selective retail developments, but only when they are supported by pre-letting by retailers, reflecting its continuing caution over the sector. "We see further opportunities in this area, particularly in edge-of-town locations targeted by supermarkets and other retailers," it said, echoing British Land's comments.

British Land Tuesday joined other U.K. real-estate investment trusts in reporting higher net asset value per share, driven by higher property valuations and improving rents.

The company, which owns a mix of retail and office developments, echoed peers in reporting a good recovery in both values and rents in the London office market, a recovery it expects to continue as a continued shortage of supply combines with a large number of lease expiries over the next three years.

In the six months to Sep. 30, it committed to spending GBP1 billion on new office developments in London, which, when completed will mean London offices make up about 40% of its portfolio, from about 33% currently. Grigg said the swing to London offices reflects the company's confidence in the London office market going forward, but didn't necessarily mean British Land's portfolio mix would change in the future. "We're comfortable with where the portfolio is," he said.

The company in August confirmed it would team up with private-equity firm Blackstone Group LP to develop a new London headquarters for Swiss bank UBS AG (UBSN.VX), one of its new development projects.

-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284; steve.mcgrath@dowjones.com

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