The Duke of Westminster’s property company, which owns swathes of the exclusive London boroughs of Mayfair and Belgravia, has paid a £50m dividend despite falling profits.
The boss of Grosvenor, the Duke’s £11.5bn property empire, has warned of a period of stagflation and that UK interest rates and inflation could stay high for longer than expected, resulting in ” more pain” for the commercial real estate market.
Mark Preston, the chief executive, predicted a “recession” in the property sector, as the value of its UK offices and other commercial assets fell 3.7% year-on-year amid a market downturn, after a growth of 2.5% in 2021.
Even so, it paid a £49.9m dividend to the Duke’s family and their trusts, after a £48.7m dividend in 2021. Grosvenor also owns country estates and one of the largest farms from the UK, as well as investments in food and agro-tech. companies
The company is owned by the duke, Hugh Grosvenor, 32, one of Britain’s richest men and godfather to Prince George. The 32-year-old has just gotten engaged to Olivia Henson, who works as an account manager for a food company in London.
Preston said the big challenges included the move to hybrid work that had reduced demand for office space, along with rising interest rates and the withdrawal of the availability of debt financing, particularly in the US, which will severely affect over-indebted companies.
“Those [buildings] that are awkward spaces, less well located and, in particular, less up to scratch in terms of their environmental credentials are really struggling,” he said.
“Fortunately, we don’t have many of those. You hear stories of 30% to 40% occupancy in these types of buildings and it’s not just a UK story, it’s an American story as well. Those are properties where the refinancing issues are going to be pretty severe…in the next few months.”
Prices in the UK’s $1.6 trillion commercial property sector fell 13% last year, according to industry figures from property group CBRE, as transactions hit the lowest levels in more than one of each. Experts expect further price drops this year.
Preston predicted “some more pain in terms of property values” and said the extent of the recession depended on the path of interest rates.
Bank of England Governor Andrew Bailey has predicted inflation will slow in the coming months, but it has remained stubbornly high, with official figures last week showing it at 10.1% in March, down from 10, 4% February.
Preston said: “Once inflation reaches these kinds of levels, it’s very difficult to bring it down again. So my suspicion is that interest rates won’t come down as fast. They will stay elevated longer than some people say. But there may not be any particular reason why they need to go much higher.”
Grosvenor’s pre-tax profit from urban property fell to £110m last year from £437.5m a year earlier, partly because 2021 results were boosted by some big property deals. . Earnings in the UK property business, excluding valuation moves, rose 6% to £38.3m, with projects including offices on the Bond Street West Elizabeth line station. Grosvenor’s total return fell to 3.5% from 5.2% as rising interest rates caused property values to fall.
The value of the group’s real estate assets, which also include US warehouses, student accommodation and laboratories, increased from £8.9bn in 2021 to £9bn, reflecting higher residential and warehouse values. high, while total assets under management rose to £11.5bn from £11bn.
The company paid £85.6m in total tax last year (including £45.5m in the UK), up from £119.4m in 2021, due to lower acquisition of properties and a reduction in income and gains from the trustees’ directly owned portfolio of urban properties. . Taxes included £23.9 million in corporate income tax and £20.7 million in annual property taxes. Grosvenor is owned by UK tax domiciled trusts.
The company is taking a step towards social housing with a scheme in Chester, near the Duke’s family seat, Eaton Hall. It is remodeling 30 homes into what it says will be high-quality sustainable homes for vulnerable people, where social care professionals will provide comprehensive support.
Preston said the Duke, who inherited the business after his father’s death in 2016, was keen to help vulnerable young people, while his father was more focused on military charities. Grosvenor targets hundreds of such homes, including in partnership with housing associations. He also owns 700 affordable homes in Mayfair and Belgravia dating back to previous dukes.