London office owner and developer Great Portland Estates said it expects rental values to fall by between 5% and 10%.
Chief executive Toby Courtauld said rising unemployment due to the impact of COVID-19 will mean “rents and capital values in London will fall further”.
The group gave the guidance as part of half-year results to the end of September 2020 in which its portfolio fell in value by 6.6% to £2.5bn.
The fall was mainly driven by its retail portfolio (the majority of which are attached to office buildings) which fell by 18%. The value of its offices dropped by 2.4%.
After the revaluation deficit, the group made a loss after tax in the period of £154.8m.
Rental values were down 3.9%, again driven by retail (-13%). Office rental values were down 0.7%.
The impact on its EPRA net tangible assets (NTA – the new EPRA valuation guide for property companies that replaces NAV) has been a 7.8% fall, to 800p per share.
EPRA earnings per share was down 22.6% to 8.2p, as a result of impacted rent collection in the period due to COVID-19.
In the six month period, the group collected 83% of all rents charged leaving £7.6m unpaid at 30 September 2020. After assessing the balance for recoverability, it has estimated £3.7m will be lost.
Balance sheet
The group is one of the lowest leveraged companies in the sector, with a loan to value (LTV) of 17.2%. It has substantial headroom in debt covenants, whereby values could fall a further 63% before breach.
It has cash and undrawn facilities of £465m.
Portfolio update
The group let 77,300 sq ft of space in the six months, amounting to £6.6m per annum, at 4.6% above the March 2020 estimated rental value (ERV).
It has a further £6.8m worth of lettings under offer, 13.9% ahead of September 2020 ERVs, and another £30m worth in negotiations.
The group completed five rent reviews in the period, 7.8% ahead of previous passing rent.
Flex space now accounts for 13% of the office portfolio, as it continues to respond to trends in the occupier market. A further 140,900 sq ft is being appraised for flex space across the portfolio.
On the development front, the group completed two schemes – The Hickman in E1 (75,300 sq ft, 28% under offer) and Hanover Square in W1 (221,500 sq ft, 55% let).
It is also progressing on two further developments – 1 Newman Street and 70/88 Oxford Street – that are 31% pre-let.
Chief executive comments
Toby Courtauld said: “It is clear that the impact of the COVID crisis will persist for longer than we had hoped. With unemployment rising, albeit from a low level, we should expect rents and capital values in London to fall further. However, we are encouraged by the level of new enquiries we continue to receive from prospective occupiers, particularly for our developments and our flex space product, along with increasing activity in the central London investment market.
“As we look beyond COVID, it is likely that the evolution in the patterns of work and shopping we have experienced over recent years will have accelerated – for example, the demands of office occupiers for greater wellbeing provision in smaller scale, more flexible buildings with higher sustainability credentials. We are addressing these and other themes through, for instance, growing our flex office offer and the launch today of our Roadmap to decarbonise our business to Net Zero by 2030.
“And, we are doing so firm in our belief that, however occupiers’ demands evolve, our human desire to congregate and create will underpin London’s magnetic appeal as a global business capital for the long term; plus, our financial strength, extensive pipeline of opportunity across our portfolio and our talented team with its deep market knowledge will give us the ability to choose our path to deliver on all our ambitions.”
GPOR : Great Portland Estates forecasts London rents to fall by 5%-10%