Derwent London PLC sees less ‘max-packing’ of offices after Covid-19

PLC () said it expects vacancies in its portfolio to rise once recovery from Covid-19 gets fully underway.

Changes to the way its offices are used in the future are also on the way with fewer businesses ‘max-packing’ their staff into buildings, added the property owner.

That will mean more collaboration space, meeting rooms, video conference facilities and other amenities, the group said, with an increased emphasis on mental health, wellbeing and environmental performance, the FTSE 250 group said.

Businesses will adopt more agile working practices and while this might reduce overall office demand, Derwent does not believe the impact will be significant.

London-focused Derwent reported a mixed performance in the year to end-December with its office rentals holding up but sharp drops in collections from hospitality, pubs and restaurants, which make up 9% of its portfolio.

For 2021, Derwent said it expects asset value to fall by up to 5% but added rents might bounce back relatively quickly along with the economy

Unlike the letting market, the investment market saw a strong final quarter, it added, with London office yields offering good value compared to other European cities and alternative asset classes.

Overseas demand remains strong, with Asian and Continental European investors prominent at the end of 2020.

Derwent posted a loss of £83mln in the year to end-December 2020 as it wrote down the value of its £5.4bn portfolio by £196mln.

Net tangible assets were 3,812p, down 3,7% year-on-year while net rental income dropped 2.1% to £174mln.

“By location, our central London properties, which represent 99% of the portfolio, dropped in value by 2.9% with the West End down 3.3% and City Borders down 2.1%.

The dividend for the year rose by 2.8% to 74.45p.

Broker Liberum said: “The high quality development pipeline is largely pre-let. While near term returns appear modest, Derwent’s quality assets in favourable locations, many with regeneration potential, underpin a strong long-term outlook.

“The shares currently offer a 2.4% dividend yield and trade on a 13% discount to Dec 20 NTA, which is a discount to peer Great Portland yet Derwent is more ‘pure play’ into resilient London offices.”

Shares were flat at 3,316p.