British Land is accelerating plans for a string of major developments in the capital, including a reworking of a former Meta headquarters and a 750,000-square-foot City tower, on the back of buoyant rental growth and demand.

The £3 billion real estate investment trust has reported rising underlying profits driven by rising rents, a busy leasing period and cost cutting in half-year results for the six months to end of September.

The country's third-biggest REIT says its continued focus on the specific areas of sectors with the strongest rental growth and occupier demand, offices, retail and logistics, means it is increasingly confident about committing to more development and upping its previous performance guidance. Those sectors now represent 89% of its portfolio.

Speaking to CoStar News, Bhavesh Mistry, its chief financial officer, said: "The main message is we are seeing strong rental growth and that is a function of us being in the right markets and that is giving us confidence as we look ahead. We are seeing very strong operational performance, very high leasing and high levels of occupancy against the continuing challenging economic environment. And that is combined with really good cost control. Values fell a little but that has been offset by strong rental growth, and actually retail parks and urban logistics in London saw improvement in values."

It sold its Vodafone office and data centre portfolio to ICG for £125 million, as revealed by CoStar News, at 13% above book value at a net initial yield of 4.6%

The REIT also agreed a lease surrender with Facebook parent Meta of its 1 Triton Square lease in London on 25 September for a payment of £149 million, as well as the acquisition of Thanet Retail Park in April 2023 for £55 million at a net initial yield of 8.1%. Its portfolio occupancy is at 96%, with campuses 94%, retail parks 99% and London urban logistics 100%.

Vacancy across its campuses was 4.2%, compared to 8% in the wider London office market, and reflects the location of its campuses.

It added that estimated rental value growth for its campuses was 3.2% compared with 2.2% in the wider market and reported a "noticeable increase in demand", with 1.8 million square feet of deals in negotiations on 1 million square feet of space.

BL added that asset values continue to be hit by the higher interest rates environment but said rental growth is compensating and suggested the peak in UK base rates is near.

Across its portfolio values were down 2.5% to £8.704 billion, with campuses minus 4%, retail parks up +0.2% and London Urban Logistics up +0.6%. It is expecting ERV growth at the top end of its previously guided ranges for full year 2024, with campuses at 2-4%, retail parks 3-5%, and London urban logistics 4-5%.

BL said underlying profit grew 3.4% to £142 million, while underlying earnings per share hit 15.2p, up 3.4%. It announced a dividend per share payment of 12.16p up 4.8%.

Shares were trading up 4.31% to 327.30 pence and a market cap of £3.03 billion by 11.52 GMT.

It leased 1.6 million square feet in the period, 12.2% ahead of the estimated rental value, and there is a further 1.1 million square feet under offer, 16.6% above ERV.

Key deals in the period included LGC, one of the largest life sciences lettings in the UK this year, at its Guildford development.

Campus leasing was at 368,000 square feet, 7.5% ahead of ERV, with 281,000 square feet under offer, 9.7% above ERV. Retail and London urban logistics leasing came in at 1.2 million square feet, 14.2% ahead of ERV, and 844,000 square feet under offer, 20.5% ahead of ERV.

Campuses now represent 91% of its office portfolio and it has an innovation and life sciences pipeline of over 2 million square feet across the so-called Golden Triangle area of London, Oxford and Cambridge.

BL said the improved picture was helping it refocus in terms of new developments.

At 1 Triton Square, BL surprised the market earlier in the year when it secured a £149 million payment from Facebook parent Meta to surrender the lease, equating to seven years of rent, at a building it had leased but never moved in to.

BL has now fleshed out its plans for the building. It explained that although Meta had secured an occupier to take over its lease, the REIT believes there is more value to be created by taking back the building given that market rents are now significantly higher than the rent it was paying. It says it has a flexible plan to add lab space on the bottom floors as well as its Storey flexible offices platform "whilst retaining best-in-class office space on upper floors, which will accelerate our plans to reposition Regent's Place as London's premier innovation and life sciences campus".

Mistry added: "Meta reassessed its real estate strategy. They found an occupier to pay a rent of £70 per square feet but market rents are much higher at around £90 and then because of the likely occupier we think rents can be north of £100 per square feet."

BL said it continue to buy retail parks opportunistically as they have "strong occupational fundamentals, values below replacement costs, attractive yields and are earnings accretive upon acquisition", but its pipeline is focused on campuses and London urban logistics, both subsectors where supply of new schemes is constrained.

In the half year it committed to one new scheme, the Peterhouse expansion, a lab-enabled building in Cambridge.

The near term pipeline covers 1.9 million square feet and the next projects on its radar are 2 Finsbury Avenue, a consented 747,000-square foot office tower at Broadgate in the City where it is having "very constructive pre-letting conversations", The Box, an urban logistics scheme at its Paddington Central campus and Mandela Way, a multistorey urban logistics scheme in Southwark. It expects to commit to The Box and Mandela Way shortly.

At 2 Finsbury Avenue, BL said the the development is not committed but it has started demolition and basement works to improve "optionality". Mistry said: "We think it will be the best building in London but it would need a prelet to commit given the scale. We need to push rents and we are having really good conversations on the rental tone. And when it might complete in 2026 and 2027 it would be a very high quality asset being delivered into a supply-starved market."

The medium-term pipeline covers 8.2 million square feet, the largest of which are the future phases of the Canada Water Masterplan, which accounts for 4.2 million square feet and Euston Tower, where it is planning an innovation and lab-enabled building.

London urban logistics opportunities account for 2.4 million square feet of medium-term opportunities. This includes: Thurrock, where its has submitted plans for a 644,000-square-foot two-storey logistics scheme east of London; Heritage House, Enfield where it has a planning consent for a two-storey logistics scheme totalling 437,000 square feet; and Hannah Close in Wembley, where there is potential to deliver 668,000 square feet of multistorey urban logistics space, within the M25.

In terms of sales, which are understood to likely include the Meadowhall shopping centre in Sheffield, Mistry said: "Looking back since 2021 we have sold £2.6 billion of real estate at a good yield of around 4% and we will continue to look at selling non-core. Shopping centres are non core. We like working with sovereign wealth pension funds and we do look to find the right partner at the right price."

Simon Carter, CEO, said in a statement with the results: "We are benefitting from our decision to pursue a value-add strategy across campuses, retail parks and London urban logistics. These submarkets have the strongest occupational fundamentals and highest rental growth within the office, retail and logistics sectors. We now expect ERV growth at the top end of our previous guidance for FY24.

"Whilst in the past 18 months we have delivered good earnings growth, asset values have been impacted by the increase in interest rates. The geopolitical and economic landscape remains uncertain; however, with our portfolio yield now over 6% and an increased likelihood we are approaching the peak in UK base rates we expect the strong occupational fundamentals of our submarkets, together with the differentiated quality of our assets, to reassert themselves as the primary drivers of performance."