Great Portland Estates expects 10% rise in London office rents

Companies are paying more than ever to be in the best offices in London, and Great Portland Estates expects rents will continue to rise by as much as 10 per cent this year.
The landlord and developer, which owns a few dozen blocks mostly in the West End, said there is “deep customer demand” for modern, eco-friendly workspaces.
Between April and September, the first half of its financial year, GPE agreed 28 new leases and renewals, bringing in £10.5 million of annual rent. On average, it got 7 per cent more than valuers had estimated for those deals.
Come the end of March, bosses expect that rents for prime office buildings in central London will have risen by at least 5 per cent year-on-year, and perhaps by as much as 10 per cent.
Businesses, especially the big multinationals, are increasingly wanting to base themselves in the best offices because it helps them to attract and retain staff and hit their sustainability targets. At the same time, there is very little prime space available to rent.
“There’s this remarkable shortage of prime stock,” Toby Courtauld, chief executive of GPE, said. “The vacancy rate [for prime offices] in the West End is 1.3 per cent. There’s so little of it out there that when good buildings come along, they’re leasing up pretty well.”
Courtauld said, for one block GPE is redeveloping in Mayfair, he has received enough inquiries to lease it three times over. “We’ve not even finished demolishing it yet,” he said.
The rental growth contributed to the value of GPE’s portfolio rising by 0.8 per cent between April and September to £2.5 billion. “Although modest, [that is the] first valuation increase for several years,” James Carswell, a commercial property analyst at Peel Hunt, said.
As a result, the group swung back to a profit of £29.9 million in the six months to the end of September, having sunk to a loss of £253.4 million in the same period of last year, when its portfolio valuation took a hefty writedown as interest rates rose sharply.
Net asset value per share, a key metric for property stocks, edged up 0.4 per cent to 475p, although its shares still trade at a steep discount to that. They closed down 3p, or 1 per cent, at 297p.
The discount reflects investors’ concerns that GPE’s offices may fall further in value, although the consensus in the industry is that the commercial property market is emerging from its two-year downturn.
After years of being a net seller, GPE has started to buy more offices again given Courtauld’s belief that “asset pricing is at or near cyclical lows”. It raised £350 million from investors over the summer to give it extra spending power, of which it has already deployed about a third, and GPE has a further £1 billion of deals that it is looking at.