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Derwent London, a prominent FTSE 250 real estate sector firm, has upgraded its rental growth guidance following a robust performance in the first half of the year. The company reported a 1.5% increase in gross rental income, bringing the total to £107.5 million. Additionally, EPRA earnings per share saw a 6.5% rise year-on-year, reaching 52.7p.
Despite these positive indicators, Derwent London (LSE:DLN) posted a pre-tax loss of £27.2 million. However, this represents a significant improvement compared to the £143.1 million loss recorded during the same period in 2023. The company's net asset value per share declined by 2.7% to 3,044p, while its total return for the period was -1%, a notable recovery from the -11.7% seen in the first half of 2023.
The company's portfolio showed encouraging signs, with a 2% growth in estimated rental value, marking its strongest six-monthly performance since 2016. Although capital values decreased by 1.7%, development values experienced a 4.3% increase. The EPRA vacancy rate also saw improvement, reducing to 3.2% from 4.0% in December. Tenant retention and re-letting rates stood at 86%, highlighting the company's ability to maintain a stable occupancy rate.
Derwent London made significant strides in its development projects during the first half of the year. The company received planning approval for the 50 Baker Street development and achieved an 84% pre-letting rate at 25 Baker Street, with rents 14.6% above the appraisal ERV. These milestones underscore the company's ongoing efforts to enhance its portfolio and secure high-quality tenants.
Looking ahead, Derwent London has raised its ERV growth guidance for 2024 to a range of 3% to 6%, citing a stabilising UK economic and political environment as key factors. The company anticipates that office yields will continue to appeal to a broad range of stakeholders, supported by London's strong position as a global business hub.
Paul Williams, Chief Executive Officer of Derwent London, noted the acceleration of rental growth for prime office spaces in desirable locations during the first half. He emphasized that recent stabilization in investment yields has contributed to increased confidence across the sector. Williams highlighted the company's successful leasing activities, with £8.8 million in new rent agreed in the first half, and year-to-date lettings totaling £10.8 million, with an additional £3.4 million currently under offer.
Williams also pointed out that London's appeal as a global city, combined with Derwent London's high-quality, design-led offices, positions the company well to benefit from ongoing demand. He mentioned that the outlook for the company has improved, supported by a strengthening UK economy and initial interest rate cuts, making yields on London offices increasingly attractive.
With a strong balance sheet and a 40-year track record, Derwent London is exploring opportunities to accelerate its growth plans while continuing to build out its substantial development pipeline. Williams expressed confidence that rising rents, coupled with the company's strategic initiatives, will contribute to increasingly favorable total returns in the years ahead.
