The Crown Estate will have to change more in the next decade than it has in the preceding century as it grapples with challenges from climate change to Covid, according to the boss of the monarch’s property portfolio.
“The organisation that I inherited was very successful for 260 years. But I think there is recognition from everybody . . . what got us here is not going to get us to where we need to go,” said Dan Labbad, chief executive of the estate, in an interview with the Financial Times.
The estate and other property owners in the UK faced “obsolescence” if they did not adapt as they would risk losing tenants to nimbler rivals and the potential redundancy of buildings that failed to meet rising environmental standards, he warned.
The sentiment is striking from the custodian of one of the UK’s largest and most traditional — even staid — estates. The Crown Estate manages the monarchy’s £13.4bn portfolio, which includes central London shops, large swaths of rural land and the seabed around the UK, in the public interest.
Dating back to 1760 in its modern form, the estate returns profits to the Treasury, which allocates a “sovereign grant” to the Queen to cover the maintenance of a number of palaces.
Since joining the Crown Estate from Australian developer, Lendlease, in December 2019, Labbad has made it clear the company, and the broader property sector, must change — and the pandemic, which has badly hit rental income from tenants in retail and hospitality, has increased the urgency.
The government’s decision on Wednesday to extend a ban on evicting tenants or aggressively chasing them for unpaid rent will put further pressure on landlords’ cash flow.
The Crown Estate’s results next week will reveal a hit to the value of the estate’s property portfolio similar to that felt by its large listed peers, said Labbad. Other landlords with retail and office exposure, such as Land Securities and British Land, have reported falls of around 10 per cent to their property valuations in the past financial year.
One hedge against coronavirus’ impact is the estate’s growing seabed leasing business. “We have a marine business that is doing well and the country has needed energy through this whole period. So the diversification of our portfolio has really sustained it,” said Labbad.
But, for now, roughly half of its revenues come from property in central London, where the pandemic has decimated tourism.
“What is the future of the centre of London? Who will be attracted to that space? Is it offices or retail, or are there other things that we should think about? Before coronavirus, that took care of itself,” said Labbad.
The estate has pushed to pedestrianise Regent Street and is adapting its offices to support flexible working.
Having long taken advantage of millions of tourist visits a year, central London “is an urban renewal story now . . . we have to earn the community; we have to earn patronage,” said Labbad.
The chief executive said landlords must also do more to meet the threat of climate change and boost diversity within the sector.
Environmental goals that commit the Crown Estate to reaching net zero emissions by 2030 were signed off in December last year — a “moonshot” ambition that Labbad admitted would require a huge effort as well as technology that is yet to be developed.
After decades of being criticised for inaction, property owners are moving to address the environmental performance of their buildings, which collectively account for around 40 per cent of global emissions, according to the World Green Building Council.
The Crown Estate has leased much of the seabed to wind farms it hopes will form part of a more sustainable energy system and is retrofitting its premises to make them more efficient, a complex process because many are historic, listed buildings.
This year, the estate auctioned the rights to build offshore wind farms around Wales and England in a deal that could be worth almost £9bn over a decade.
The Crown Estate is also pegging executive pay to carbon targets and has set its own carbon price to align development economics with climate targets.
But even with aggressive measures now, “we’re talking about a world in which we mitigate versus a world in which it’s catastrophic. What we’re fighting for as a generation is keeping things at a manageable level . . . This is a crisis,” said Labbad.
Another challenge is improving diversity, which Labbad said the industry had failed to do “nearly as fast as it should”.
The Crown Estate’s own eight person board is made up of four women and four men, including Labbad, but includes no one from a black, Asian or minority ethnic background.
“We are looking at systematic bias very, very carefully [and asking] what are the things that happen in recruitment and in succession planning that are biased and we need to address?,” said the chief executive.
The more immediate challenge is to navigate the disruption wrought by the pandemic.
“Anything could happen over the next 12 months . . . It’s too early to think things are going to be on this linear road back,” said Labbad.