Wednesday, February 28, 2024 8:20am
Office giant Derwent London has revised its forecasts upward for 2024 as demand for central London property remains strong.
The company’s 2023 results reveal it brought in new rents of £28.4m, up from £9.8m in 2022, 8% above estimated rents for the year.
The FTSE 250 property company has announced £1.8m of new rental income so far this year, with a further £2.7m under offer.
Gross rental income in 2023 totaled £212.8m, an increase of 2.8% from £207m in 2022.
However, the company’s annual total return was -11.7% as a decline in the value of its real estate portfolio offset rental growth. Despite this performance, Derwent still outperformed the industry benchmark of -7.9%.
The company’s portfolio was worth £4.9bn at the end of the year, down 10.6% over the year, compared with a 6.8% decline in 2022.
Derwent London said it expects rental growth across its portfolio to average between 2% and 5% in 2024.
“Quality space will continue to be in demand and we expect better buildings to outperform,” he said, adding that he expects yields to respond as inflation continues to decline.
This update highlighted the changing fortunes of London’s commercial property market, with the West End office market recovering faster compared to the City and Docklands.
The West End vacancy rate is currently 4.4%, while the City vacancy rate is 11.9% and Docklands 16.7%.
Mr Derwent said: “We think the supply of new buildings, especially in the West End, is unlikely to be so constrained and this helps explain why rents are rising here.” Ta.
Against this backdrop, the company said it expects to see “an increase in the number of willing sellers” of real estate this year and has “balance sheet capacity to explore these opportunities as they emerge.” .
Paul Williams, CEO of Derwent London, said: While existing supply and development pipelines are constrained, occupier demand continues to focus on well-located spaces with best-in-class amenities and services.
“We expect these conditions to become increasingly favorable through 2024, so if our better buildings outperform, we will raise our portfolio rental guidance for this year to the 2% to 5% range.”
Williams added: “In recent years, we have invested significant capital to reduce our exposure to buildings that no longer meet evolving occupier requirements and upgrade the remainder of our portfolio.
“As inflation continues to decline and the cost and availability of financing improves, we expect real estate yields to respond by going through a period of significant increases. We are now at the end of this yield cycle. We believe we are getting closer to this, and we expect volumes to increase and opportunities to emerge.”