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London housebuilder Berkeley puts ‘mini-WeWorks’ in developments as profits soar

·3-min read
Berkeley’s new Green Quarter development in Ealing, which is being created from a former gasworks site (The Berkeley Group)
Berkeley’s new Green Quarter development in Ealing, which is being created from a former gasworks site (The Berkeley Group)

London-focused house builder The Berkeley Group invested in the capital during the pandemic and is now reaping big rewards from its decision.

Berkeley today said profits were up 26% to £290.7 million in the six months to the end of October as income soared by 36% to £1.2 billion. The company sold 1,828 homes in the period, up from 1,104 last year, at an average price of £647,000. Shareholder returns in the period nearly tripled to £486 million in the period.

The business upgraded its full-year earnings forecasts by 5% and said pre-tax profits were likely to rise by around 5% each year for the next three years.

Shares in Berkeley jumped 5.3% to the top of the FTSE.

CEO Rob Perrins said the performance was the result of Berkeley’s decision to invest £2 billion into London during the pandemic even as other developers were pulling back.

Steve Clayton, manager of the HL Select UK Growth Shares fund, which holds a position in Berkeley Group, said: “Historic investment into land acquisition, at times when others have been wary or unable to commit, has left the group with a clear growth runway ahead.”

Perrins said: “We very much believe in London. We see London coming back, we started to see it coming back in June.”

Berkeley specializes in redeveloping large sites in non-central London and parts of the South East. It launched new developments in Brent, Kingston and Wapping during the period and is now eyeing projects in Peckham and Woolwich.

“I never thought, starting 25 years ago, I’d be buying a site in Peckham,” Perrins said. “Actually, it’s fantastic. It’s got two Michelin restaurants and Frank’s Cafe [a rooftop bar].”

Clayton said: “The group’s ability to redevelop complex sites in and around the capital, taking land that others fear to touch and transforming it into premium properties is their key attraction for investors.”

Perrins said concerns about a London exodus driven by a ‘race for space’ were “overblow”. Berkeley is seeing demand returning across the board in the capital, with everyone from students to families looking for new properties. Reservations are now above pre-pandemic levels, having been down 20%. Sales are split 50-50 between international investors and locals buyers.

While the ‘race for space’ isn’t driving everyone out, Perrins said the pandemic had changed the way Berkeley was developing some of its sites. The company is putting “mini-WeWorks at the bottom of your development” - shared office and meeting spaces that can be used by residents who are working some of the time from home.

“We are putting in more space,” he said.

Perrins said 90% of his staff were back in the office and “really enjoying it.”

“I’m very much a supporter of getting people back in,” he said.

Supply chain problems and labour shortages have been a thorn in the side of all businesses this year. Material costs rose by 5% in the period but Perrins said prices had “stabilized”. While material cost pressure is easing, the company is now grappling with soaring energy costs.

Lead times for bricks have shifted from 6 weeks to 26 weeks. Perrins said Berkeley was managing the issues by ordering stock earlier.

Like all builders, Berkeley has been affected by the cladding scandal. Perrins said Berkeley had “worked our way through” most of its properties and done remediation work where it was at fault: “We’ll always stand behind our buildings.” He said the industry was waiting for new guidance from the government on how to resolve the issue. A 4% ‘cladding tax’ on house builder profits was announced in the October budget to help fund remediation work.

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