Office giant Derwent London has upgraded its expectations for 2024 as demand for its central London properties remained robust.
In the firm’s 2023 results, it revealed it had brought in £28.4m of new rent, up from £9.8m in 2022 and eight per cent above its estimated rental value for the year.
So far this year, the FTSE 250 property firm said it had booked in new rental income of £1.8m, with a further £2.7m under offer.
Gross rental income for 2023 totalled £212.8m, up 2.8 per cent from £207m in 2022.
However, the company’s total return for the year was -11.7 per cent as a fall in the value of its property portfolio offset rental growth. Despite this performance, Derwent outperformed its industry benchmark of -7.9 per cent.
The company’s portfolio was worth £4.9bn at the end of the year, an underlying decline of 10.6 per cent throughout the year, compared to a 6.8 per cent decline in 2022.
Derwent London said it expected rental growth across its portfolio to average two per cent to five per cent in 2024.
It said it expected “high quality space to remain in demand, with better buildings to outperform”, and as inflation continues to fall, yields will respond.
The update highlighted the changing fortunes of London’s commercial property market – the quicker recovery of West End’s office market compared to the City and Docklands.
West End vacancy is currently at 4.4 per cent, compared to the City at 11.9 per cent and Docklands at 16.7 per cent.
Derwent said: “We believe that the supply of new buildings has rarely been more constrained, particularly in the West End, which helps to explain why rents here are rising.”
Against this backdrop, the company said it expected to see “a rise in the number of motivated sellers” of property this year, and it had “the balance sheet capacity to explore these opportunities as they emerge.”
Paul Williams, chief executive of Derwent London, said: “We have previously anticipated an acceleration in rental growth for the best buildings. Occupier demand continues to focus on well-located space with best-in-class amenity and service, while existing supply and the development pipeline are restricted.
“We expect these conditions to become increasingly favourable through 2024 and as such increase our portfolio rental guidance for the year to a range of two per cent to five per cent with our better buildings to outperform.”
Williams added: “Over the last few years, we have reduced our exposure to buildings which can no longer meet evolving occupier requirements and have invested significant capital upgrading our remaining portfolio.
“With inflation continuing to reduce and the cost and availability of finance improving, property yields are expected to respond, following a period of substantial increases. We believe we are now approaching the end of this yield cycle, with transaction volumes expected to increase and for opportunities to emerge.”