Property developer Derwent London has lowered its expectations for rental growth after Britain’s EU referendum, predicting a short-term hit to demand for office space.
The group, which is developing sites including the White Collar Factory building off London’s “Silicon Roundabout”, on Thursday said it expected rents in its portfolio to rise by 1 to 5 per cent in 2016, compared with a previous prediction of 5 to 8 per cent.
However, the company said it had had a record first half for lettings and had seen continuing demand even since the Brexit vote.
“We regard London office occupier demand as the most important measure of the health of our real estate market. The result of the EU referendum and the ensuing uncertainty is expected to lower demand levels,” the group said.
“However, London is likely to remain an important and dynamic city with a number of inherent strengths which will continue to appeal to a wide range of international and domestic occupiers.”
Derwent is known for working with designers to create spaces that appeal to technology and media companies. It let 267,700 sq ft of space at rents 5.4 per cent above December estimates, generating £16.7m a year, plus another 112,600 sq ft since the start of July.
The FTSE 250 group, which also has assets in areas such as Clerkenwell and Fitzrovia, is increasing its interim dividend by 10 per cent to 13.86p a share.
“We’ve involved in this middle market, with rents from £45 to £80 a square foot, and there is constant demand with not a huge supply coming through,” said John Burns, chief executive, adding that the drop in rent expectations resulted from “general uncertainty”.
The group highlighted that its reliance on financial companies, which are expected to suffer from Brexit, is limited — financial companies accounted for just 2.3 per cent of its rental income in June.
Even so, it said it may opt to delay one development following the vote: its 240,000 sq ft Brunel Building in Paddington, due for completion in 2019.
Growth in the capital values of Derwent’s properties, 1.6 per cent compared with 8.8 per cent a year earlier, reflected a slowing property market. The group added that it believed real estate yields might increase slightly — implying a slight drop in prices — during the second half of the year.
Derwent’s shares were down 3.3 per cent by mid-morning and have shed 20 per cent of their value since the Brexit vote as investors worried over its effects on the property market, and particularly on London office demand.