Is commercial property investing dead? You might think so if you were able to walk the streets of our city centres during the lockdown. Looking at FTSE 100 shares in the sector might leave you with the same opinion. And the growth in online shopping and soaring demand for home deliveries might just cement it.
But I think rumours of the death of bricks and mortar businesses are exaggerated, and the shares are oversold.
British Land Company (LSE: BLND) shares had lost 45% at their lowest point in the coronavirus-led FTSE 100 crash. And that’s among the worst falls. At the time, the FTSE 100 was down 25%, so British Land shares were clearly very much out of favour.
FTSE 100 shares recovering
Since that low point, FTSE 100 shares have recovered some of their losses, and British Land has been at the forefront. As I write on Wednesday, British Land shares have put on 33% since their lowest price of the year. A lot of investors out there clearly thought the shares didn’t deserve such a lowly rating.
The retail business was already under pressure before Covid-19 came along, and British Land shares were already down prior to the crisis. But after a sector crunch, the better quality companies tend to eventually come out the strongest. On that score, British Land invests in high quality retail properties and London offices. Both of those are sub-sectors that I still think have a strong long-term future.
The company’s year ended on 31 March, so it will include the start of the lockdown slump. But, as with many FTSE 100 shares, we’ll have to wait to hear how the company is doing. British Land has now now delayed its full-year results for two weeks, until 27 May. I wouldn’t be surprised if the outlook was already a bit brighter by then.
Sector tracker
Land Securities Group (LSE: LAND) has been on an almost identical roller coaster. Its share price initially fell by almost exactly the same amount as British Land’s. And it’s also ahead of the recovery in FTSE 100 shares with a 35% rebound since its low point.
Land Securities is not quite as focused as British Land, but it makes up for that in size. Its main interest is also in retail and offices, but it is one of the UK’s largest property companies. If you want to invest in FTSE 100 shares in general rather than selecting individual stocks, you’d go for an index tracker fund. If you want a similar spread across the office and retail sector, I think buying Land Securities is probably as close to a sector tracker as you’re likely to get.
Land Securities shares have also been under pressure over the past five years, and they’re down to P/E multiples of around 12 (similar to British Land). I wouldn’t rate that as a screaming buy valuation, but I really don’t see a lot of downside.
End of the tunnel
Office space is surely going to continue in high demand once the lockdown ends. And I don’t know about you, but I’m getting sick of shopping online and at my local supermarket. I want to get out to the real shops, the big ones in town.
I think both of these are among the FTSE 100 shares with solid long-term potential.