British-based property investment and development firm Derwent London has upgraded its rent growth guidance for the second time this year as demand for the best office space outstrips supply.
The London office landlord expects its estimated rental values to grow as much as 6% this year, up from 2.1% in 2023, according to a statement Thursday. The company had already upgraded its rent guidance in February, when it predicted growth of up to 5%.
The pace of rental growth accelerated in the first half of the year for “the best offices in the right locations” as stabilising yields boosted confidence across the sector, CEO Paul Williams said in the statement.
London office demand has become concentrated on the small sliver of new, energy-efficient and amenity-rich buildings that can help companies reduce their carbon footprints and lure workers back to the office.
That has put pressure on the value of older buildings as developers weigh the hefty capital expenditure required to upgrade them in a bid to lure tenants.
UK property stocks have suffered a series of setbacks in recent years, as Brexit, the pandemic and rising interest rates have buffeted the sector and depressed share prices.
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Still, there are signs that markets over corrected anticipating deeper falls in valuation than have so far been reported, setting up the conditions for a bounce back.
Derwent, whose shares were little changed in early trading on Thursday, said the central London office market strengthened further in the first half, with limited supply driving rental growth for the best space.
“The outlook has continued to improve, supported by a strengthening of the UK economic environment and an initial interest rate cut, with yields on London offices looking increasingly attractive to a range of investors,” CEO Williams said in the statement.
