A historic offshore wind auction by the Queen’s property manager, the crown estate, helped to counter a sharp drop in the value of its retail portfolio, but could not prevent a 22% decline in annual profits to £269m.
The crown estate, which manages the seabed around Britain as well as a vast land and property portfolio that includes Windsor Great Park and Regent Street and St James’s district in London, said its profit for the year to March fell by nearly £76m from the year before, mainly due to a drop in its rent take.
The group hands its profits to the Treasury and 25% is returned to the royal household in the form of the sovereign grant – a funding formula that is due to be reviewed next year.
The value of the group’s total portfolio rose by 7.5% to £14.4bn, driven by an increase in the marine portfolio of £2.1bn reflecting a sale of windfarm leases, which offset a £1.1bn drop in property values, mainly in the London and regional retail portfolio, as retailers were hit hard by the coronavirus pandemic.
The crown estate collected 81% of rent due from its retail and office clients, after offering them rent deferrals or rent-free periods to help them get through the pandemic.
Offshore wind makes up a growing part of the crown estate’s portfolio. It aims to increase offshore wind capacity from less than 10 gigawatts presently to 40GW – enough to serve the power needs of every home in the UK – over the next 10 years to help the UK achieve its net-zero carbon targets.
The UK’s offshore wind boom handed the crown estate a multibillion-pound windfall earlier this year after its auction of seabed plots for windfarms off the coasts of England and Wales attracted runaway bids from windfarm developers and oil companies.
The crown estate’s first auction of windfarm licences in a decade set record highs after energy firms, including the oil company BP, offered to pay a total of almost £880m a year to lease seabed plots while they build six new offshore windfarms to generate the equivalent of enough clean electricity to power more than 7m homes.
The developers are required to pay the option fee as “rent” on the seabed licences while they develop plans for the windfarms. This could take up to 10 years, which would hand an almost £9bn windfall to the Crown, but energy companies will try to complete the development of the sites in half this time to save on costs.
Dan Labbad, the chief executive, warned that despite the wind boom, “another tough 12 months” lay ahead for the crown estate. “There is no doubt that we are concerned about retail and have been for some time.”
Labbad said the group would run more pilot schemes to figure out what clients wanted. It has supported the part-pedestrianisation of Oxford Circus and is adapting its offices for flexible working. “The biggest challenge for us is ensuring that we can repurpose the business for the future.
“We had 50 million people walk down Regent Street two years ago. That number has fallen by 75%. A lot will come back naturally, but we are not relying on that.”
He added that retail parks were performing quite well because shoppers could drive there, rather than city-centre locations, to which people generally travel by public transport.