FTSE 100 commercial property developer Landsec is set to scale up its investment in UK retail property, as chief executive Mark Allan insists there is no slowdown in consumer spending

Landsec, Britain’s largest commercial property developer, is set to pivot towards retail property, bucking pessimistic sentiment in the market by indicating there is no slowdown in consumer spending.

The FTSE 100 company oversees a property portfolio where office rents have climbed sharply, as elevated construction cost inflation and interest rates constrain supply, while demand surges. It now aims to increase its investment in retail property.

“Growing our investment in major retail destinations remains our highest conviction call, given its high income yield and the attractive income growth on offer for the right assets,” the company stated in its full-year results.

The developer controls a portfolio of Britain’s largest shopping centres, including Bluewater in Kent, Liverpool One and the Westgate in Oxford, as reported by City AM. Its properties also include MediaCity in Salford, and it is also working on residential developments in Mayfield in Manchester.

Yet Britons’ purchasing power is declining, as inflation concerns triggered by the Iran war have compounded existing cost-of-living challenges facing households.

In April, consumer confidence dropped to a two-year low and retail footfall declined by more than 10 per cent.

However, Mark Allan, Landsec’s chief executive, stated he has not witnessed this fall-off in consumer spending at the firm’s retail sites.

Landsec’s latest data demonstrates “strong growth in spending and footfall, so no slowdown at all,” Allan remarked when unveiling the company’s results. He continued: “I think that’s largely a function of a concentration of spending into fewer locations rather than being indicative of what’s happening perhaps across the wider market.

“But we see no slowdown in activity there at all, and most importantly for us, no slowdown in leasing demand.”

Total retail sales at Landsec locations are up 6.3 per cent compared to the 1.1 per cent nation-wide average growth recorded by the British Retail Consortium.

Major brands such as Uniqlo, Sephora and those under the Inditex umbrella – which includes Zara and Bershka – have opened more outlets at Landsec sites than anywhere else, he said.

“Retail offers the most compelling returns in terms of existing income and growth potential,” he added.

Construction costs for London offices have surged by 41 per cent over the past five years, according to Landsec data.

While both retail and office property have seen rents rocket owing to constrained supply, Landsec claims its initial income yield from retail is 200 basis points higher than the return on an investment in office property.

The company stated its most recent London office development programme is due to complete within the next few months, and it has no intentions of investing in new offices.

Last year, Landsec revealed plans to reduce its exposure in office property from £6bn to approximately £4bn, though the firm has confirmed it will remain substantially invested in its existing office portfolio. The firm recorded a pre-tax profit of £346m in the year to March, down 12 per cent from the previous year, while rental income rose by five per cent to £562m.

Landsec’s share price climbed by 1.6 per cent on Thursday to 580p, leaving the stock down six per cent in the year to date.