London office landlord and developer Great Portland Estates says it expects positive rental growth over the next year as the supply of new offices are choked off by weaker sentiment and cost inflation.
This coupled with a continued “flight to quality” offices by occupiers gives cause for a positive outlook, with the company giving a portfolio rental value guidance of between 0% and 5% for the new financial year.
The group has published full year results in which IFRS NAV and EPRA NTA per share was up 7.2% to 835p for the 12 months to 31 March 2022. With dividends paid of 12.6p, the company delivered a NAV total return for the year of 8.8%.
The value of the portfolio increased 6.1%, while rental values were up 3.0%. EPRA earnings per share was 10.8p.
Record leasing year
The company produced a record year for leasing, with £38.5m of new annual rent secured across 520,900 sq ft of space. The lettings were 9.8% above March 2021 estimated rental value (ERV). It has a further £9.4m of lettings under offer, which are 2.5% ahead of March 2022 ERV, and a further £32m-worth in negotiation. Vacancy across the portfolio was down to 10.8%.
Portfolio and development progress
The company has a near-term development pipeline worth £1.1bn across four prime office led schemes totalling 917,800 sq ft, with start dates in next 24 months. It has completed 1 Newman Street, W1 (122,700 sq ft), with 69% of the space let or under offer and has fully let a major office refurbishment at 50 Finsbury Square, EC2 (129,200 sq ft).
Two acquisitions were completed in the year totalling £66.5m, and it said it was reviewing a further £1bn of acquisitions. It also sold 160 Old Street, EC1 during the year for £181.5m, at a 5% premium to March 2021 valuation. A further £200m of sales are under review.
The group has cash and undrawn facilities of £391m and a loan to value (LTV) of 20.5%.
Toby Courtauld, Chief Executive, said:
“We are pleased to report on a strong year, delivering record leasing volumes, well ahead of ERVs which, along with outstanding development returns, profitable disposals and accretive acquisitions, have combined to deliver healthy asset value growth.
“Whilst we expect macro-economic and geopolitical uncertainties to persist in the near term, dampening growth, the conditions we highlighted at our Interims in November and which had kick-started the post-pandemic recovery in London’s economy and its property markets, remain in evidence today. London is substantially busier than this time last year with office workers and shoppers returning, Crossrail is about to open, job vacancies are rising and inward investment into income yielding real estate is up. Plus, we expect weaker sentiment and cost inflation in the short term, along with further tightening in the planning environment, to impact the appetite for development risk, choking off the supply of new office space, intensifying the already acute shortage as customers continue their flight to quality.
“Despite current uncertainties, our outlook is positive; through our Customer first approach, we are addressing today’s key customer themes of flexibility, service delivery and amenity provision in well designed, tech-enabled and sustainable spaces; through our strategic focus on HQ and Flex spaces, we are investing in two of the fastest growing sectors of the office market and where we have a competitive advantage and significant ambition, including our £1.1 billion near-term development programme. With our strategic agility, strong balance sheet, plentiful liquidity and our motivated and engaged team, we have the ability to capitalise on London’s potential and we look to our future with confidence.”
GPE : Great Portland Estates positive on office rental growth