Property company Derwent London said rents grew at their fastest rate since 2016 last year as demand for office space in the centre of the capital hotted up.
The company, revealing financial results for 2024, said growth in estimated rental value (ERV) doubled to 4.3% as occupiers scrambled to secure high quality space in good locations in the West End and the City amid a vacancy rate of just 2% in the most in demand areas.
CEO Paul Williams said the company had seen strong demand, not just for top quality price space but also for more affordable buildings, particularly those close to transport links. “London feels pretty busy,” he said.
He added:: "We have delivered another strong leasing performance, with £18.9 million of new rent signed over 12% above ERV. Alongside pre-letting the remaining office space at 25 Baker Street W1, our activity was well distributed across the portfolio. Growth in rental values doubled to 4.3%, the highest level since 2016, and valuations recovered in the second half as yields stabilised, delivering a positive total return of 3.2%.”
Derwent’s development pipeline incudes a 133,500 sq ft listed corner block on Oxford Street called Holden House, where it is due to start work in the second half of this year and a mixed-use scheme at 50 Baker Street, starting by next summer.
Derwent said gross rental income last year was up 1% to £215 million with its property portfolio valued at £4.9 billion.
Andrew Saunders, analyst, at Shore Capital, said: “ We believe that Derwent London looks to be one of the best placed listed-operators to benefit from the recovery in West End office values and we particularly like its award-winning, design-led development pipeline...West End prime office yields stabilised at around 4% during the second half of 2024 for the first time since 2021 helped by interest rate cuts, improving investor confidence and buyers returning to the market.
“We expect the market has now clearly reached an inflexion point with capital expected to see a progressive redeployment given the relative historic value and expectation of recovering asset prices.”
