LondonMetric CEO Warns: Office Buildings Melting Away in Today's Market

So, here's the deal: Andrew Jones, the big boss at LondonMetric, one of the UK's top listed landlords, has a bone to pick with office buildings. According to Jones, they're like "melting ice cubes" in the current market. And trust me, he's got some street cred in the real estate game. LondonMetric just completed a sweet £1.9bn takeover of LXi and is set to make its debut in the prestigious FTSE 100 this week.

But here's the thing that sets LondonMetric apart from the pack: they're not stuck in a specific real estate sector like offices or warehouses. They're all about exploring different avenues. Jones believes that's where most other listed landlords went wrong, sticking to their old specialty and refusing to evolve. And he might have a point there.

You see, LondonMetric used to have a good chunk of their portfolio in offices about ten years ago, but they've ditched that scene since then. Jones says it's all because of shorter office leases, stricter environmental standards and high tenant expectations for swanky facilities. Apparently, all these factors have sped up the obsolescence of office spaces over the past couple of decades. Now, with the pandemic and the rise of hybrid working, things have been getting even more complicated. The costs of keeping offices up to snuff are climbing faster than the rents they bring in. Yikes!

It's not just office spaces facing challenges, though. Rising interest rates are making property values go down across the board. And offices, in particular, are taking a hit because everyone's talking about how demand might dwindle as more and more companies embrace this hybrid working trend. According to the experts, European office values have dropped by about a third since their peak in 2022. That's definitely putting a damper on things for real estate investors who used to put a big chunk of their money in offices.

Some folks might argue that the office market isn't all gloomy, claiming there's a shortage of top-quality office spaces that are highly sought after. But Jones, well, he's a realist. He believes that technology disruption is just around the corner for this sector, just like online retail hit shopping centers. He reckons we've got too many offices and too many physical retail destinations. Ouch!

Now, let me tell you about LondonMetric's portfolio. It's quite the mishmash. They've got warehouses, convenience retail properties and even entertainment assets like Alton Towers and Thorpe Park. Quite a diverse mix. But here's the kicker: they prefer what they call "triple net" leases, where the tenant takes on all the costs to upkeep the property. It's more common across the pond in the US, but LondonMetric seems to dig it. Others in the UK might hold on tight to their properties for more control and the chance to increase their value through active management, but LondonMetric's all about that rental income, baby!

So, what's next for these property moguls? They've got their eyes on selling some properties acquired through takeovers and looking into smaller REIT deals. It looks like they're ready to embrace change and keep their income (and income compounding) on the steady rise. And that, my friends, is the blueprint for success in their book.

#distressed