The accession of King Charles III has seen two of the UK’s largest property portfolios automatically transfer to different heads, who will likely have differing views on how to get things done to their predecessors.
The Crown Estate, the monarch’s £14.1 billion real estate property company, is now ultimately being run on behalf of King Charles, who also inherits the monarch’s spread of palaces. For a review of the late Queen’s changing relationship with this real estate over the past 70 years click here.
What is vital here is to distinguish between the new King’s personal real estate and the Crown Estate, which effectively manages the real estate owned by the monarch for as long as they reign.
Queen Elizabeth II was not involved in management decisions for the Crown Estate, which is managed independently by others.
The new King has been used to being very involved in his estate as Duke of Cornwall and has been a passionate advocate for types of development and sustainability, notably railing against modern architecture on occasion. In 2014 he published his 10 principles for good architecture, which focused on sustainable urban growth based in “tradition”.
As the Prince of Wales and Duke of Cornwall, Charles has overseen a vast portfolio, and he has played a much more active role in its day-to-day operations than his mother at the Crown.
That estate, the smaller but still £1 billion-plus Duchy of Cornwall, now passes to his son Prince William, the first in line to the throne.
The Duchy of Cornwall is a private estate established by Edward III in 1337 to provide independence to his son and heir, Prince Edward. A charter ruled that each future Duke of Cornwall would be the eldest surviving son of the monarch and heir to the throne. Prince Charles was the longest serving Duke of Cornwall in history. The revenue from his estate has been used to fund the public, private and charitable activities of the Duke and his immediate family.
It is unclear what interests Prince William, the former Duke of Cambridge who now automatically becomes Duke of Cornwall, will take in his new estate.
There has long been succession planning at the Duchy, with William invited over the years to various non-executive committee meetings. He will, however, have a number of initial decisions to make about the direction of travel, not least of its £345 million commercial property portfolio.
The Duchy’s most recent accounts for the year ended March of this year, underline a clear change of direction being driven by a familiar face to most of in UK commercial property, the recently recruited Alistair Elliott, the former senior partner at Knight Frank. He has taken up the role of chair of the commercial and development committee.
The commercial investment properties are mainly located in London, Milton Keynes and Cornwall. The Duchy’s head office at 10 Buckingham Gate, London is also included. That includes the Duchy archive store.
It also oversees a number of Kennington Estate properties, including the direct letting of 16 flats and 23 houses, and various commercial buildings, as well as the Oval cricket ground and a number of long leases.
This last year there has been a clear drive to get out of low-yielding, older, less sustainable assets into higher yielding sectors, and most notably a journey away from industrial to offices and retail. It has also progressed into a first major commercial development.
In April, the estate bought an out-of-town Bristol office for £20 million as part of this drive to recycle capital from industrial into higher yielding offices and supermarkets. The heir apparent bought The Quadrant at 2610 Aztec West on the outskirts of Bristol from Citygrove at a price reflecting a 4.75% yield. The 40,978-square-foot three-storey office had recently been repositioned to be one of the most ESG compliant and sustainable office buildings in the South West, according to the investment teaser, and a clear theme for the estate.
It is fully let to St James’s Place Wealth Management Group, which is not related to the Prince’s St James’s Palace home in London, with 16.2 years unexpired term.
ACRE Capital represented the Duchy while CBRE and Colderick Consultants advised Citygrove.
The Duchy estate has recycled capital from the circa £70 million sale of an industrial distribution centre let to Waitrose in Milton Keynes in May last year. it bought the depot for around £38 million in 2013, so it has made a very nice premium.
CoStar News understands the Duchy has now appointed ACRE Capital to find office investments and Knight Frank to find supermarket and retail investments.
Reporting on this in its annual accounts it confirmed: “During the year, the Duchy restructured a significant element of the core commercial property portfolio. An ageing distribution warehouse near Milton Keynes was disposed of and much of the proceeds reinvested in three properties: a small retail park, an out-of-town office building and a car showroom complex.
The restructuring provides the advantage of diversification, longer and better income streams, and more energy-efficient, modern buildings. Income has been maintained and a capital cash surplus generated for future investment in appropriate assets.”
Introducing himself in the results, Elliott makes it clear that sustainability will be at the heart of investment decisions: “There is more to do in improving communication, internally and externally, with the team, tenants and public at large. In addition, the rapidly moving aspects of each element of ESG are front of mind and much is work in progress.
“However, there is no doubting the importance of getting this right in shaping the future of the estate, both to ensure relevance and to improve performance.”
The estate also has two large and innovative development sites for the new Duke to tackle.
Charles was the driving force behind the creation of Poundbury, a model sustainable village near Dorchester in Dorset, which is now home to more than 3,000 people and nearly complete. The estate was built to follow his own personal interests in architecture, as well as sustainability, including organic farming.
To a degree the estate has been looking to replicate this at a larger scale at Nansledan, a site near Newquay in Cornwall, where more than 4,000 homes and a high street are being built in a project expected to last three decades.
In its recent results it says Nansledan in particular has seen good growth. “Reassuringly, over 70% of private homes are still being sold to local people, and 30% of all homes are designated as affordable housing. As the Duchy progresses its first directly delivered commercial development, the commercial hub and heart of Nansledan, wider supply chain cost pressures are at the forefront of our minds.”
It has been a good year for the entire estate, with a £23 million distributable surplus reported, an 1.7% average annualised increase over the last two years (2020/21: £20.4 million). The portfolio has nudged up to £1.049 billion in value as it has bounced back from the hit to business caused by the pandemic.
There is much more to the portfolio. It comprises a landed estate of more than 52,000 hectares (128,000 acres), to make William now one of England’s biggest landowners.
The land is spread across 20 counties in England and Wales with much of it farmland, but also homes, forests, rivers, coastline and about a third of the Dartmoor national park as well as Dartmoor prison, and a plant nursery and garden centre at Lostwithiel in Cornwall.
The stated aim is to manage in a way that is “sustainable, financially viable and of meaningful value to the local community”.
The new Duke will also perhaps first of all have to make a decision on how he treats tax on the duchy income.
His father has voluntarily paid the top rate of income tax at 45% on the duchy’s earnings after the deduction of official expenditure, but as it is not considered a company, the Duke is not liable for paying corporation tax, or capital gains tax.
Parliament’s public accounts committee has in the past called for an investigation into the estate’s tax affairs for this reason.