Land Secs scotches swift UK recovery hopes

By Sinead Cruise and William Kemble-Diaz

LONDON (Reuters) - Falling rents and crippled loan markets have killed off prospects of a rapid end to Britain's savage commercial property downturn, a senior executive of Land Securities (LAND.L: Quote, Profile, Research, Stock Buzz) said on Tuesday as its shares tumbled.

Mike Hussey, managing director of Land Securities' London portfolio, said he could not predict when the battered market was likely to bottom but that he had abandoned hopes for a short, sharp shock.

"Every downturn has a phase of denial, whether we are outside that phase.... I don't know," Hussey said at the Reuters Global Real Estate Summit, in the wake of a credit crunch and deteriorating economic outlook that has so far cut 18 percent off peak UK commercial property valuations.

since these peaked last summer.

"But this immediate 'oh it will be better by the end of the year' last year bit was clearly not real," he said, referring to initial analyst expectations that UK real estate might reprice quickly after an extended bull market climaxed last summer.

Shares in Land Securities, Britain's biggest real estate investment trust (REIT) by market value, have fallen by about 46 percent since the introduction of REIT legislation at the start of 2007 and are almost 16 percent weaker so far in 2008.

The shares ended 1.18 percent lower on Tuesday at 1,260 pence -- its weakest close since December 2004.

Hussey said UK REITs and other trader-developers were pushing against a growing tide of higher construction and funding costs and deteriorating rental growth, but Land Securities was well placed to handle the storm.

"It (the tide) is definitely getting stronger... but I don't think that we as a management team are in a position where we are thinking about that being a fundamental factor in the decisions we need to make in the long term," Hussey said.

"We anticipated a quiet period for 2009-2010 even without the credit crunch," he said, referring to an expected hiatus in the firm's development pipeline.

Hussey said Land Securities expected to complete a total of 275,000 square feet of new space in the next two financial years, having completed 1.6 million square feet in the year to end-March.

But Hussey said the firm was well-placed for a potential pre-2012 Olympics recovery, adding that its one-acre Park House retail, office, and residential property development on London's Oxford Street due for completion in 2011 was "very well timed".

The company could also be flexible if a recovery in 2010 or beyond began to appear elusive.

"The developments we have programmed in for 2010 and beyond can be easily deferred if we don't feel that the market has come back," Hussey said.

He said the company had a further 12 months in which to make a decision on its high profile "Walkie-Talkie" skyscraper project at Fenchurch Street in London's City financial district.  Continued...