Derwent London reports strong first quarter
By Josh White
Date: Thursday 08 May 2025
(Sharecast News) - Derwent London reported solid first-quarter operational progress on Thursday, with leasing activity ahead of estimated rental values and continued momentum across its development pipeline, while maintaining a low vacancy rate and a strong balance sheet.
The FTSE 250 property group secured £2.7m in new lettings year-to-date, with a further £3.7m under offer.
Open market lettings were signed 2.7% above their December estimated rental values, including £0.8m of 'furnished and flexible' space let 6.3% above ERV.
Renewals and regears added another £2.9m of rent, with terms on average 8.7% above previous levels, excluding a short-term transaction at 50 Baker Street.
The group said its EPRA vacancy rate stood at 3.4% at the end of March - only marginally higher than 3.1% at the end of 2024.
Asset recycling remained a priority, with £26m received in January from the previously-announced sale of 4 and 10 Pentonville Road.
Further disposals were expected in the rest of the year to support development funding and potential acquisitions.
At 25 Baker Street, the group's largest on-site scheme, practical completion was expected by the end of June.
The office space was fully pre-let at an average headline rent of £104 per square foot, with retail and residential elements also progressing well.
Contracts had been exchanged on 20 residential units for a combined £98.4m, reflecting a 15% premium to valuation.
Work at Network W1 was meanwhile progressing on schedule, with office leasing discussions underway.
The next wave of projects would include Holden House, where demolition contracts had been awarded within budget and construction was due to begin in August.
Tenders were ongoing at Greencoat & Gordon House and 50 Baker Street, with start dates expected in the first half of 2026.
Major refurbishments were meanwhile underway at three central London properties, with £65m of capital expenditure aimed at enhancing environmental performance and capturing rental upside through upgraded space.
Net debt fell slightly to £1.47bn, reducing the Group's EPRA loan-to-value ratio to 29.6%.
Capital expenditure of £40m in the quarter was funded by retained earnings and disposal proceeds.
The final dividend of 55.5p per share, totalling £62m, would be paid on 30 May.
Interest cover for the quarter was 3.5x, and total available liquidity stood at £615m.
Derwent said its weighted average interest rate rose marginally to 3.54% on an IFRS basis following the expiry of £75m of interest rate swaps in April.
A new £115m unsecured loan facility was agreed with HSBC in February, providing additional flexibility through a mix of term and revolving components.
"The central London office market continues to see strong occupational demand against an ongoing backdrop of low supply," said chief executive officer Paul Williams.
"Larger occupiers are planning further ahead than ever before as the medium-term pipeline is squeezed.
"Investment volumes more than doubled to £2.4bn in the first quarter, compared to the prior year, driven by London's global appeal and the positive rental growth outlook."
Williams said that since the start of the year, £14.3m of leasing and asset management transactions had completed or were under offer across the portfolio, with active discussions on multiple buildings.
"There is activity across our villages for both larger headquarters spaces, as well as smaller 'furnished and flexible' units.
"25 Baker Street W1 exemplifies our best-in-class offer and will be delivered shortly.
"All the offices and two of the six retail units are pre-let at rents well above ERV and contracts have exchanged on 20 of the private residential units for £98.4m, significantly exceeding appraisal value.
"At Network W1, practical completion is due at the end of 2025 and we are in discussions with several potential occupiers."
Works were also advancing on Derwent's major refurbishments, Paul Williams noted, including Middlesex House W1, 1-2 Stephen Street W1 and 1 Oliver's Yard EC1.
"We have a high quality portfolio with an attractive average lease term and a substantial development pipeline, which positions us strongly for current and future markets.
"Our focus on earnings, regeneration and recycling underpins our positive total return outlook, and we reiterate our 2025 portfolio ERV guidance of 3% to 6%."
At 1012 BST, shares in Derwent London were up 2.07% at 2,024p.
Reporting by Josh White for Sharecast.com.
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