It might be tempting to call a top on the West End and central London property market. After all, Great Portland Estates (GPOR) delivered an astonishing 27.6 per cent increase in adjusted net asset value (NAV) in the year to March. Yet the portfolio still delivered a further 4.2 per cent gain in the first quarter to June and demand for quality office and retail space continues to outstrip severely constrained supply. So the trend may not be reaching its apogee just yet. And with shares in West End landlord and developer Great Portland trading at an attractive discount to forecast book value, there should be plenty of locked in value to attract investors.
- Strong increase in rental income
- Significant development programme
- Modest loan-to-value
- Shares trade at a discount to forecast NAV
- Modest dividend
- Valuation surpluses set to decline
Demand for West End space is linked to a great extent with the health of the London economy. At the moment, there are plenty of new jobs being created in London and that is underpinning the demand for more offices. That explains why the vacancy rate on Great Portland's portfolio fell from 3.7 per cent at the March year-end to a mere 2.5 per cent in June. And there's plenty of locked up value in the rental stream because the average rate or passing rent is well below the level that new lettings are attracting. This gap or so-called 'reversionary' rate is 19.4 per cent, which is the amount by which rental income would increase if all rents were brought up to current levels.