Derwent swings to loss but says the office has ‘no substitute’

Derwent London posted a loss of £13.2m for the first half of the year, but chief executive Paul Williams said the company’s focus on “long-life, loose-fit” office space should stand it in good stead when the coronavirus pandemic passes.  The REIT’s loss compared to a profit of £129.6m for the first half of 2019, while profit from operations tumbled from £151.1m to £2.8m. Gross rental income rose by 5% from £93.1m a year ago to £97.8m, which the company attributed to lettings at the Brunel Building, W2, and 80 Charlotte Street, W1 (pictured). However, rent collections were slightly down for the June quarter to 78% compared to March, when 81% was received. The business pointed to one or two tenant failures such as Oasis, but highlighted better-than-expected performance from flexible serviced office providers. Blackstone-backed The Office Group has paid its full rent and signalled a rise in occupation, while its other serviced office tenant, IWG, was “performing well”. Williams told EG: “We expected the June quarter to be so much more challenging than the March quarter… I’m hoping our September figures will be as good as June and March. I think our June figures were resilient.” He added: “We’re probably expecting to pay a little bit more support for the retail and restaurants again, but they represent a small percentage of our income and it may well be that we offer them more rent-frees or deferment.” Derwent also reported that occupation across its buildings had reached 15% capacity following the easing of lockdown. Williams expects capacity to rise to over 50% after the summer with full occupation in 2021. “The messaging we’re getting from occupiers is that they want to be back,” he said. EPRA net tangible assets of 3,900p per share were down 1.4% from the end of last year. The company’s portfolio value was down by 0.9% at £5.4bn. Williams said the coronavirus pandemic has brought “unforeseen challenges to London and the wider global economy” and is likely to accelerate existing trends in the use of office space. “As part of our planning and design, in conversation with business, with architects and with local authorities, we are focused on ‘long-life loose-fit’ adaptable spaces and wellness factors that can enable people to meet together in larger common areas, with higher ceilings and better air quality and ventilation,” he said. The chief executive added: “We will continue to adapt. More flexible working, heightened health and safety, more space required between desks and in communal areas all impacts the way in which we think about occupational density. “Companies still need to bring their staff together, for the collaboration that social interaction brings, to build culture, to attract and retain talent and to have a physical embodiment of their brand. There is no substitute for building relationships with colleagues and clients in person. That is fundamental to the recovery of the economy and to our wellbeing.” Derwent has carried out evaluations of its on-site development, Soho Place, W1, and its plans for 19-35 Baker Street, W1, to see if any changes were needed in light of the pandemic. Williams said “small things” such as lift buttons have been altered, but no major structural changes were required. “But it’s been a good opportunity to challenge what we’ve been doing,” he added. Derwent also announced that Simon Silver, its co-founder and executive director, will step down from his post next February and will work with the business as a consultant until the end of 2022. Co-founder and chairman John Burns described Silver as an “exceptional” colleague and friend, adding: “His understanding of the central London office market is outstanding and he has worked extensively to share those skills across the Derwent London team for many years.” To send feedback, e-mail tim.burke@egi.co.uk or tweet @_tim_burke or @estatesgazette Image courtesy of PR