Great Portland Estates to raise rent on high-end office space

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Great Portland Estates plans to raise the rent on its high-end offices as the owner benefits from demand for smaller spaces in the center of the UK capital among businesses looking to adapt to hybrid working.

In its annual results on Wednesday, the FTSE 250 firm said it expects rental prices to rise between 3% and 6% at its premium offices over the next year.

The findings come at a time of stress for the broader commercial real estate market, which is under pressure from rising interest rates and the rise of home working.

GPE’s shareholders’ equity fell 9.2% over the year to the end of March to £1.92 billion, which the company says reflects “the global impact of rising interest rates “. The group moved on to a pre-tax loss of £164m compared to a profit of £166.7m a year earlier.

However, the real estate firm was shielded from the worst of woes as the companies downsized to smaller offices in more central locations.

GPE, which focuses on high quality properties in central west London areas such as Mayfair and St James’s, signed a record number of leases during the financial year totaling £56 million, an increase by 44% over the previous year.

Toby Courtauld, chief executive, said there was an “extreme” shortage of high-quality office space in such areas, which he said would allow the firm to raise rents.

In central London, the vacancy rate rose from 5% in March 2020 to 9.1% this month, according to property data provider CoStar.

However, vacancies vary by area, with rates above 10% in areas such as Canary Wharf and as high as 3% in parts of the West End.

Courtauld said the market for better quality assets in central locations has “passed the low.” She added that hybrid work was “clearly here to stay.”

Rising gross rental income pushed revenues from £84.2 million in the prior period to £91.2 million.

Miranda Cockburn, an analyst at Panmure Gordon, said the gap between high-end and second-tier office space is increasingly stark.

“It has to tick the environmental boxes, it has to have good facilities and services,” he said. “If you have old properties that don’t meet those criteria, it’s really hard.”

GPE, which also has a portfolio of properties on high streets including Oxford Street, Bond Street and Regent Street, said it could raise rents at its commercial businesses as well, thanks to a rebound in travel and higher sales in the stores from the Covid-19 pandemic.

The group said it expects rental price growth of up to 5% for its retail properties.

GPE maintained a total dividend of 12.6 cents for the year. Shares fell 1% early Wednesday afternoon, extending last year’s decline to more than 20%.