Derwent London has upped its rental growth guidance for 2024 after a strong year for leasing in 2023, which saw it add £28m of new rent at an average of 8% ahead of ERV.
“Despite macro uncertainty, businesses are prioritising quality, amenity and sustainability, supporting good demand for the right product in the right location,” said chief executive Paul Williams. “This plays well to our strengths and reflects London’s diverse and robust occupational market, particularly in the West End. After a year of substantial outward yield movement, investment opportunities are starting to emerge and our balance sheet positions us well.”
The £28.4m in rent achieved in 2023, compares with £9.8m of new rent in 2022 and includes £16m from 155,000 sq ft of prelets to PIMCO and Moelis at 25 Baker Street, W1.
So far in 2024, the firm has signed £1.8m of new rental agreements with a further £2.7m under offer.
The strong leasing activity helped push gross rental income up by 2.8% to £212.8m in the year ended 31 December 2023. The company is now increasing its rental guidance for this year to a range of 2% to 5%.
“We seem to have the right product in the right location,” Williams told EG. “I always like to use the phrase beware of averages. If you look at vacancy rates across central London, there’s an average of 9%. But that hides a hell of a different story, in as much as the City is at best part of 12%, Docklands 17%, and the West End is tiny at 4.4% I think people are happy to pay a premium rent to be in the right location. We feel confident about what occupiers want. People are busy and people want to be in London… We’re positive about a) London, b) the West End and c) what we’re providing.”
Despite a strong occupational market, values remain depressed, with the value of Derwent’s portfolio falling by 10.6% to £4.9bn over the year. In 2022, values were down by 6.8%.
Williams added: “Over the last few years, we have reduced our exposure to buildings which can no longer meet evolving occupier requirements and have invested significant capital upgrading our remaining portfolio. With inflation continuing to reduce and the cost and availability of finance improving, property yields are expected to respond, following a period of substantial increases. We believe we are now approaching the end of this yield cycle, with transaction volumes expected to increase and for opportunities to emerge.”
Williams said the pace of potential investors into the London market had started to increase and that Derwent expected 2024 and 2025 to present “interesting acquisition opportunities” for well-capitalised investors such as itself.
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