5 ways Derwent London is evolving offices

The listed developer offered a glimpse into its business plan as it reported a confident recovery in rents across its portfolio.

At-a-glance strategy

1. Quality wins ‘war for talent’ | An office building’s “adaptability, amenities, ability to promote wellbeing, sustainability and ‘digital intelligence’ are increasingly important to occupiers…High quality office space is an important weapon in promoting a business’s culture and the ‘war for talent’.”
2. Offices ‘at centre of things’ | “We expect space requirements to continue to focus on peak occupational demand, which often requires a significant proportion of the workforce to be present at one time. Less individual desk space may be replaced by additional video conferencing facilities. In addition, as more businesses return to their offices the need to be ‘at the centre of things’ will be reinforced.”
3. Wellbeing was not a fad | Derwent London’s occupier surveys conducted throughout the pandemic have consistently shown that collaboration and social activity have been most missed during the pandemic. “As time has progressed, wellbeing, training and innovation have become significant additional concerns.” The developer is investing in dedicated drop-in meeting points for tenants such as DL/78 opening soon in Fitzrovia.
4. Staff levels hold firm | “In February we were encouraged to find that 51% of respondents intended to increase their headcount. That has not changed, but the percentage seeing no change has increased from 18% to 29%. As a result, 80% have said they intend to increase or see no change in their headcount in the next six to 12 months up from 69% in February.” This underpins the asset strategy to retain quality offices and continue with “extensive” pipeline which could deliver 2.5m sq ft more office space.
5. Future is ‘intelligent buildings’ | “We expect to retain more of our larger modern developments where we see good long-term demand. These will provide asset management opportunities and a core of high-quality income. These properties will enable the group to build on its network of established occupier relationships as well as making meaningful long-term investments promoting climate resilience, higher levels of customer services, intelligent buildings and supporting local communities.”

Derwent’s portfolio is valued at £5.4bn, an underlying increase of 1.4% in the first half of the year. The vacancy rate across the portfolio was less than 3%. Paul Williams, chief executive, commented: “Sentiment is improving as the year progresses which has been reflected in our results and encouraged us to raise our estimated rental value guidance.”

The company added in its statement to shareholders: “In the first six months the London office market and our own portfolio have performed near the upper end of expectations. We are continuing to see good letting activity and demand. The growth rate in the London vacancy rate appears to be levelling, new supply remains constrained and some previously available tenant-controlled space has been withdrawn from the market. In the light of this evidence and on the assumption that there is no further lockdown, we are raising our average portfolio ERV guidance to +2.0% to -2.0% for the year ending December 2021. This compares to our March 2021 estimate of 0% to -5%.

“Operationally, we have seen higher rent collection with offices, the bulk of our income, now close to pre-Covid levels.”

Derwent’s major holdings include 25 buildings in 14 business hotspots across the capital.