Firm’s first half profits for second consecutive year

London developer Derwent has predicted the “flight to quality” to continue in the capital’s commercial market, reporting good demand met by short supply in its core market.

The firm released its half-year results today, which showed pre-tax profit up 13.2% to £137.1m for the six months to 30 June, as well as a net rental income of £93.9m - up 4.2% on the same period last year. 


Work has begun on Derwent’s Network Building in Tottenham Court, with the scheme expected to complete in 2025

Paul Williams, chief executive of Derwent London, said: “We are seeing good demand for our distinctive brand of high-quality offices, with short supply of prime space in our core locations.

“Despite the uncertain macro environment, the continuing flight to quality combined with our strong financial position gives us confidence that we are well placed with a pipeline of value-adding opportunities.”

According to the results report, businesses were “re-engaging with their long-term occupational requirements” as covid restrictions have lifted, resulting in market take-up in the first half year being 16% above the 10-year first half average.

Banking and finance was reported as the most active sector thought the vacancy rate remains high in the city at 12.3%.

Occupier needs reportedly cover a broad spectrum from very flexible to long-term leases, with businesses demanding a combination of adaptable and sustainable buildings with high quality amenity.

Many businesses are apparently “prepared to pay premium rents” for spaces that meet their requirements due to relatively short supply of high-end space, but leasing transactions are taking longer to complete as occupiers extend decision making timescales.

Derwent signed 24 new leases totalling £71m p/a in the first half of the year and predicted the so-called “flight to quality” to continue, maintaining its guidance for 2022 of average ERV growth in its portfolio between 0% to 3%.

The first half of the year also saw it complete developments at Soho Place, 88% of which has been let or sold, and the Featherstone Building, 22% has been let.

The developer is exploring the option of opening a hybrid co-working space at The Featherstone Building, after a similar amenity – known as DL/78 – proved popular at its 80 Charlotte Street Campus.

Derwent currently has two offices under construction, both due to complete in 2025.

The developer said 97% of construction costs have been fixed on the 298,000 sq ft Baker Street development following the appointment of Laing O’Rourke as the main contractor earlier this year.

Erith has completed demolition work on a series of existing buildings on the site and ground works are now underway.

At the Network building in Tottenham Court Road, demolition recently commenced at a fixed cost.

The developer is in conversation with preferred contractor Kier on the main build contract, with the cost to complete the build estimated at £105m.

Derwent has a further 1.9m sq ft of space in its longer term pipeline, excluding its planned acquisition of the Moorfields Eye Hospital site.

The firm signed an agreement to buy City Road Island for £239m in May, but the deal is not expected to complete until 2027

According to the developer, the site has potential for redevelopment into a 750,000+ sq ft mixed-use campus and architect AHMM has been hired to draw up proposals.

The purchase is dependent on final Treasury approval, expected later this year, and the delivery of a replacement eye hospital called Oriel.