Great Portland Estates plans to increase the rent at its top-tier offices as the landlord benefits from demand for smaller space in the centre of the UK capital among businesses that are trying to adapt to hybrid working.
In its annual results on Wednesday, the FTSE 250 company said it expected rental prices to rise between 3 per cent and 6 per cent at its premium offices in the coming year.
The results come at a time of stress for the wider commercial property market, which is under pressure from rising interest rates as well as the increase of homeworking.
GPE’s net assets fell 9.2 per cent over the year to the end of March to £1.92bn, which the company said reflected “the global impact of rising interest rates”. The group swung to a pre-tax loss of £164mn compared with a profit of £166.7mn the previous year.
The property company has nevertheless been shielded from the worst of the difficulties as companies have downsized their headquarters to smaller offices in more central locations.
GPE, which focuses on top-quality properties in west central London areas such as Mayfair and St James’s, signed a record number of leases during the financial year worth a total of £56mn — up 44 per cent from the previous year.
Toby Courtauld, chief executive, said there was an “extreme” shortage of top-quality offices in such areas, which he expected would allow the company to increase rents.
Across central London, the office vacancy rate has risen from 5 per cent in March 2020 to 9.1 per cent this month, according to property data provider CoStar.
However, vacancies vary by area, with rates higher than 10 per cent in areas such as Canary Wharf and as low as 3 per cent in some parts of the West End.
Courtauld said the market for best quality assets in central locations was “past the trough”. He added that hybrid working was “clearly here to stay”.
Higher gross rental income pushed revenue up from £84.2mn in the previous period to £91.2mn.
Miranda Cockburn, analyst at Panmure Gordon, said the divide between top quality and second-tier office space was increasingly stark.
“It’s got to be ticking environmental boxes, it’s got to have good facilities and amenities,” she said. “If you’ve got old properties that don’t meet those criteria, it’s really difficult.”
GPE, which also has a portfolio of high street properties including on Oxford Street, Bond Street and Regent Street, said it expected to be able to increase rent at its retail assets as well, thanks to a rebound in travel and an uptick in store sales since the Covid-19 pandemic.
The group said it expected rent price growth of as much as 5 per cent across its retail properties.
GPE maintained a total 12.6p dividend for the year. Shares were down 1 per cent by early afternoon on Wednesday, extending a decline in the past year to more than 20 per cent.
