British Land’s ‘compelling fundamentals’ imply big upside

British Land’s Broadgate campus, an office and retail space, in the City of London. Photo: Mike Kemp/In Pictures via Getty Images.

The sector-leading discount on the 6.5% yielding shares of British Land Co persists today, despite upbeat guidance and demand fundamentals as strong as chief executive Simon Carter has seen.

The real estate investment trust (REIT), whose £10 billion portfolio is focused on London office campuses and UK retail parks, trades at about 36% below its net tangible value of 590p a share.

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City firm Berenberg, which has a price target of 531p compared with today’s level of 378p, points out that the wider sector’s discount is closer to 30% and that British Land yields dividend income above the average 5.9%.

The shares have lost a quarter of their value in the past five years, including 5% so far in 2026 as a combination of higher-for-longer interest rates, rising levels of job vacancies and longer-term fears over the impact of AI adoption weigh on sentiment.

The pressure has continued despite last month’s guidance that earnings per share (EPS) in 2026-27 will be at least 30.5p, representing 6% growth on the 28.9p in today’s pre-announced annual results. It expects EPS growth of 3-6% per annum and total returns of 8-10% across the cycle.

Management said it has seen no slowdown in leasing demand, with 295,000 square feet of campus space under offer at the end of March and a further 228,000 square feet in the following six weeks.

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British Land has a 5% share of the London office market, but said it accounted for 15% of reported leasing activity last year and that this rose to 33% in the fourth quarter.

Carter added: “While the geopolitical and interest rate backdrop has become more uncertain, the occupational fundamentals underpinning our portfolio are as strong as I have seen them.

“Central London office net take-up is at its highest level in 20 years and our retail parks are 99% occupied.”

British Land points to a new wave of demand from high growth AI and innovation-led businesses for whom British Land’s campus offering particularly resonates.

It adds that development starts have reduced across London, driven by sentiment around hybrid working, higher construction costs, higher yields and more demanding return requirements.

This has led to estimates of a 10.4 million square feet shortfall of new or substantially refurbished space up to 2030.

The shortage is particularly acute in the City, where vacancy levels for new and refurbished space is forecast to fall below 2% and remain there for the next four years.

British Land points out that such conditions have historically supported strong rental growth at around 10% per annum.

On retail parks, the REIT said its out-of-town format appealed to new and existing retailers because of lower occupational costs, good accessibility and growing footfall.

It said: “Our decision in 2021 to increase our exposure to retail parks is continuing to deliver. Since then, we have increased the portfolio from 15% of the group to 32% today and in that time retail parks have been the best-performing subsector in UK real estate.

“Our portfolio has delivered a total property return of 12.3% per annum, outperforming the wider retail park sector by 410 basis points over the last five years.”

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With a policy of setting the dividend at 80% of underlying EPS, British Land said it intends to distribute 10.80p to shareholders on 24 July. This brings the total for the year to 23.12p, up 1% on a year earlier.

City firm Peel Hunt, which has a price target of 490p, said today that the shares were at an “undemanding” valuation of 13 times forecast 2027 earnings.

Morgan Stanley also likes “compelling fundamentals in London offices medium term,” and rates the shares as ‘Overweight’ with a 480p price target.

“British Land offers strong rental growth, driven mainly by the demand/supply imbalance in the London office market, which stands out compared to many other European office markets, yet there is limited valuation differentiation.

“This should drive good EPS and [dividend] growth, and also sustained solid total [net asset value]-based returns (total accounting returns), both of which suggest a re-rating is overdue, but which equally will likely only happen as and when gilt markets start to look more settled.”