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Workspace rent decline abates but growth return less certain

The flexible office provider is waiting on improving occupancy before increasing pricing
Workspace rent decline abates but growth return less certain
  • Rental values decline on weaker demand from tenants
  • Pricing has started to stabilise and new lettings recover

Occupancy rates trump rents for Workspace (WKP) management. So while the level of enquiries and viewings has returned to pre-pandemic levels over the past two months, a recovery in pricing will be slower. 

Average rent per square foot declined 13 per cent for the flexible office space provider last year, but has since stabilised, according to chief financial officer Dave Benson. How quickly that returns to growth will depend on the pace employers are attracted back to offices and restrictions being lifted further. Benson said the group expects to make “significant inroads” into recovery occupancy, which declined 11.7 percentage points to 81.6 per cent by the end of March.

Weaker demand was reflected in a fall in estimated rental values of almost 10 per cent and drove a similar level of decline in the value of the portfolio, which pushed the group to a pre-tax loss. 

Panmure Gordon forecasts a net asset value of 925p a share at the March 2022 year-end, rising to 947p 12 months later. After a sizeable re-rating since the start of the year, that leaves the shares trading at a narrower discount of 4 per cent. Hold. 

Last IC view: Buy, 806p, 31 Mar 2021

WORKSPACE (WKP)    
ORD PRICE:889pMARKET VALUE:£1.61bn
TOUCH:888.5-891.5p12-MONTH HIGH:926pLOW: 472p
DIVIDEND YIELD:2.0%TRADING PROP:NIL
DISCOUNT TO NTAV:5%  
INVESTMENT PROP:£2.35bnNET DEBT:34%
Year to 31 MarNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201795389.055.021.07
20181,03717010527.39
20191,08613778.932.87
2020*1,08872.540.036.16
2021*938-236-13017.75
% change-14---51
Ex-div: 1 Jul   
Payment: 6 Aug   
*EPRA net tangible assets