SEGXF Segro PLC REIT (PK)

Any impact from the U.K. government's planned spending cuts on commercial property companies will be delayed, and the firms could end up benefiting from the cuts, property consultancy CB Richard Ellis said Wednesday.

The U.K. government said it would sell some of its assets and better manage the remaining space it uses as part of its plans to cut central government spending as part of a wider plan to cut the nation's huge debt burden. However, it didn't detail its plans.

The move comes after the government hired retail entrepreneur Philip Green, who heads clothing retailer Arcadia Group PLC, to review its spending. Green, who is known for fierce lease negotiations for his businesses like Topshop and Bhs, said the government's property portfolio was wholly inefficient. He said the government as a whole could save billions of pounds a year if it improved "shocking" spending processes.

In light of the review, U.K. Chancellor George Osborne said Wednesday that the government would consolidate its rented space through lease breaks, make better use of buildings and improve the management of its assets, as well as selling some that it owns.

That could hit the U.K.'s listed landlords, many of which count the government as a client. Government office space coming onto the market could also hit office values.

However, CB Richard Ellis said that while landlords could be hurt when the government starts vacating buildings, it will take time to agree lease breaks. It will also take time before the government starts to sell assets.

"The impact of the Comprehensive Spending Review on the property market will be delayed, as property cannot be turned on and off like a tap," said Sarah Whitney, managing director of government & infrastructure at CBRE. "It will take time to establish what the government's property portfolio actually looks like and to exercise breaks and lease ends."

If landlords choose to terminate government leases, it will be to refurbish older buildings and put them back onto the market for higher rents amid constrained development stock in the pipeline and an improving market, CBRE said. The listed sector might even pick up cheap assets if government is in a hurry to sell.

However, there will be regional differences, with regions further away from London potentially suffering a bigger impact from any cut in government rentals.

"While London will be fairly insulated from the effects thanks to strong demand for office space, regional locations such as Newcastle and Wales will fare worse as it will be harder to find tenants to replace the outgoing public sector," said Whitney.

At 1345 GMT, the U.K.'s largest real estate companies were higher, with Capital Shopping Centers Group PLC (CSCG.LN) up 4 pence, or 1.1%, to 389 pence, followed by retail landlord Hammerson PLC (HMSO.LN) which rose 2 pence, or 0.5%, to 419 pence. Land Securities Group PLC (LAND.LN) was up 2 pence, or 0.3%, to 680 pence and British Land Co. PLC (BLND.LN) was up 1 pence, or 0.2%, to 679 pence.

-By Anita Likus, Dow Jones Newswires; +44 20 7842 9407; anita.likus@dowjones.com

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