Demand for quality office space in London's West End, together with a paucity of supply, are working well for Great Portland Estates (GPOR). That's highlighted by a deal to pre-let its entire office space within the huge One Rathbone Square development at the eastern end of Oxford Street. Facebook has signed an unconditional agreement to lease 227,324 sq ft of office space on a 15-year term, with a conditional agreement on a further 15,461 sq ft, subject to Great Portland securing planning consent for a change of use from retail to office.
The office space is not due for completion until February 2017, and Facebook will pay an initial rent of £16.9m a year after receiving 30 months rent free from completion - a fairly typical leasing package. The Rathbone Square building covers 418,698 sq ft of mixed-use development, including 142 apartments, of which only 10 remain available, as well as 24,222 sq ft of retail space around a new public garden square. Following the pre-let to Facebook, around 87 per cent by value of the development is either pre-let or sold.
Great Portland has also agreed to provide Facebook with rights of first offer on 1 Dean Street, due for completion in April 2017, and 76 Oxford Street, subject to Great Portland gaining planning consent for a comprehensive refurbishment.
Numis says...
Hold. This deal absorbs a significant proportion of space currently under construction in the West End. It also significantly de-risks the Rathbone development. We are upgrading our development appraisal assumptions to £74 per sq ft as an average estimated rental value, with a yield of 3.75 per cent. We are upgrading our net asset value forecasts for Great Portland by 2 per cent to 840p per share for March 2016, and by 1 per cent to 918p for the following year. Our capital growth forecasts remain unchanged, but these could be moved higher as the occupational market in the West End is tighter following this letting.
Investec says...
Buy. The latest deal de-risks Great Portland Estates' largest scheme some 18 months ahead of completion, while the headline rent of £74.34 per sq ft represents an 8.3 per cent premium over estimated rental value. We expect further strong rental growth, together with meaningful development surpluses, to drive three-year compound annual growth in the group's book value of 11.7 per cent. Accordingly, we are forecasting adjusted net asset value per share of 846p by March 2016, rising to 921p a share the following year.
