Profits tumble at Duke of Westminster’s Grosvenor, but 64% of London office pipeline is pre-let

Boss Mark Preston’s comments came as Grosvenor, which has a £9 billion property empire across 12 countries and owns large chunks of Mayfair and Belgravia, showed it was not immune from economic headwinds in 2022, including rising interest rates and real estate value falls resulting in a lower total return.

The company, which has had an association with London property since 1677, experienced gains in UK retail and residential values last year. However UK offices declined 3.7%.

But Grosvenor has seen good interest in its new London office pipeline totalling 174,270 square feet: it is already 64% pre-let.

Meanwhile at Holbein Gardens near Sloane Square, the group’s first net-zero carbon office development has been let at rents ahead of expectations.

Preston told the Evening Standard there are headwinds that office landlords face. He said: “Hybrid working is changing demand trends for offices, favouring the more flexible and higher specification buildings, while older buildings require significant capital investment to make them competitive and energy efficient, at the same time as rising interest rates pose refinancing challenges for such properties.”

Preston added: “There is a dramatic polarisation between the best [offices] and the rest. There is some real trouble coming in the secondary office sector for those with older and less energy efficient properties.”

Not all of Grosvenor‘s offices are immune from challenges and will need upgrades, although this space is only a small part of the portfolio.

The company said its urban property division, of which 55% is in the UK, saw revenue profit, which strips out the impact of real estate revaluations, tumble to £52.7 million last year from £99.7 million.

Pre-tax profits plunged 75% to £110.4 million. It was impacted by lower trading profits in the US and a year earlier the figures were flattered by some one-off gains as developments completed.

Grosvenor, which also invests in food and agricultural technology, called it a solid performance in the face of challenging economic conditions. A dividend of £49.9 million was paid to the Grosvenor family’s UK tax-paying trusts.

In a company statement Preston also said: “We have set a Grosvenor-wide commitment to further reduce our direct and indirect emissions across all our businesses to deliver, at a minimum, a science-based carbon reduction in line with limiting global warming to 1.5°C. We believe that this is the right thing to do but also see it as an essential value driver which will underpin the resilience of our business.”