Office giant Derwent London has upgraded its rental guidance due to an increase in rental growth and a more stable investment environment, according to the company's CEO.
The FTSE 250 office specialist announced in its half-year results that while valuations continued to decline, income had grown.
Derwent, which owns prominent spaces across London such as the White Chapel Building and Shoreditch's White Collar Factory, reported a 1.5 per cent rise in year-on-year gross rental income for the six months leading up to June 30, increasing from £105.9m to £107.5m.
"The lettings market for the right product for the right location is very good," CEO Paul Williams told City AM.
"We've booked nearly £11m year to date so far, about 10 per cent above ARV [after repair value a term to prediction of how much a space will fetch after repairs and upgrades have been completed]."
The increase in rent volumes contributed to a 6.5 per cent rise in earnings per share to 52.7p, supported by the firm securing £8.8m of new rent, as reported by .
This resulted in open-market lettings being 10 per cent above December's estimated recovery value (ERV); the strongest since 2016.
Due to the robust rental market, the office specialist, whose shares have fallen 22.64 per cent over five years following the double impact of the pandemic and interest rate rises, has increased rental guidance to "three to six per cent".
The company has raised its guidance for the second consecutive quarter, marking a positive trend. However, Derwent's overall portfolio value continues to decline, with a further 1.7 per cent drop between January and June, following a more than 10 per cent fall in its full-year results.
Despite this, Derwent remains optimistic, declaring an end to the falling valuation cycle. The company stated that the "outlook has continued to improve", with potential further rate cuts making yields on London offices increasingly appealing.
Williams, the firm's CEO, attributes much of the ongoing improvement in the company's fundamentals to the dynamism of London, where almost all of the firm's sites are located. He said: "London is a world-class city with broad appeal to both international and domestic businesses," adding that "It's very much in demand. I think the Elizabeth Line has been a bit of a game changer for people getting into town."
He also noted that "People are back in town... most people are in the office three or four days a week... and they enjoy the feel that London provides."
Williams further highlighted the diversity of London, stating: "And unlike other major cities, London benefits from such a diverse range of occupiers. We start talking to an occupier, we never know where they're going to come from or what sort of business they are."
Derwent London has recently received the green light for a new development on Baker Street, with CEO Paul Williams signalling a continued focus on acquiring premium, strategically situated properties.
Williams commented: "We have the ambition to buy. While we haven't seen any real distressed, we are seeing some sensitively priced buildings. Hopefully we can look to add to the portfolio."
The company had previously divested £900 million worth of less desirable assets three years prior.
