Grosvenor, the property company controlled by the Duke of Westminster, has suffered a fall in returns as a result of the slowdown in the London property market.
Grosvenor’s total return for 2017 was 2.7%, down from 8% a year ago, as the value of its portfolio fell.
The Grosvenor family has owned large swathes of Mayfair and Belgravia since the 17th century.
Chief executive Mark Preston said the company had anticipated a dip in the value of its London properties following a “cooling in the market”. He said fewer international investors and the drop in the value of sterling after the Brexit vote had exacerbated the fall.
Grosvenor has long been cautious of the London market, and began cutting its exposure to the capital’s property sector four years ago.
More positively, Grosvenor’s revenue profit, which the firm uses as its chosen measure of performance and is based on the income from its portfolio, almost doubled on the previous year, rising from £79.2 million in 2016 to £143.5 million in 2017.
This was mostly driven by income from the North American division, which at almost £72 million accounted for around half of the total, the Telegraph reported.
The company owns residential, retail and office buildings in major cities such as San Francisco, Vancouver, Washington DC and Calgary, and last year completed a number of new developments, boosting its income.
Preston said global real estate markets were likely to face a challenging 2018, particularly in the UK where he thought economic growth would be constrained this year and next.
“We remain mindful that the cycle is at a fairly mature stage and investors will have to adjust to the prospect of a rising global cost of capital,” he said, adding that he did not think the value of buildings would increase much more.
Grosvenor Group is ultimately controlled by the seventh Duke of Westminster — the UK’s ninth-richest man with an estimated wealth of £9.5 billion.
Although the 27-year-old present duke, Hugh, picked up a £42.3 million dividend, up 5% on the previous year, the UK arm was the weakest performer in the group, with returns of just 1.3%.
“We think a lot of these markets are overvalued… if anything we’re surprised more hasn’t happened sooner,” Preston told the Evening Standard.
He said Brexit uncertainty was adding to the impact of rising interest rates which usually hit property values.
“We’re now moving into a period where interest rate rises aren’t being threatened but they’re actually starting to happen,” Preston said.
His remarks follow warnings from the Bank of England that commercial property values appear stretched.
“We have probably had a weaker performance than the concentrated UK-only companies,” Preston added. “It is definitely the case that the regions have held up better than central London has.”
Last year Grosvenor launched its 20-year vision for the UK estate with plans to maintain and improve many of its historic streets.
The group recently submitted a planning application for one of London’s largest build-to-rent developments in Bermondsey, which will comprise 1,350 new homes for rent.
DealMakerz isn’t surprised that Grosvenor’s returns in London have suffered, given the widespread coverage of the capital’s slowing property market.
The group’s 81% annual profit increase demonstrates the benefits of its internationally-diversified portfolio.