11 August 2022
If you are covering Derwent London’s latest financial results, please find below a comment from Oli Creasey, property research analyst at Quilter Cheviot:
“Derwent London, the London office landlord and developer, produced resilient HY results this morning, although guidance for H2’22 was mixed.
“The company was able to grow NAV during the six month period as property values increased marginally. But company management warned that outward yield movement was expected in H2 and will put pressure on those valuations. Positive rental growth continues for the portfolio, with like-for-like rents up +1%, but that growth rate is unlikely to fully insulate values against rising yields. Derwent believes that its portfolio will be more resilient than average owing to its relative quality, but is unlikely to be immune.
“Falling values may be just around the corner, but occupational interest remains high. Derwent notes that although leases are taking longer to be agreed, take-up of space in H1’22 was above the 10-year average, and office vacancy has decreased across London, although there is a divergence between the West End, which is back below the long-term average vacancy, vs the City where vacancy rates remain high. Despite the continued interest, CBRE reported a net withdrawal of tenant-controlled space, pushing vacancy and available space down further. This translates into rental tone, particularly for the top quality spaces which remain in high demand – Derwent had reiterated guidance for the market rent (ERV) of its portfolio to grow between 0-3% over 2022.
“Derwent London shares are trading at more than a 30% discount to today’s reported NAV. While prospects for London office are mixed, the stock market appears to have priced in a significant fall in values which may well prove an over-reaction."
