Workspace reports weaker pricing as demand falls

An increase in the number of tenants downsizing and vacating in the wake of the pandemic meant the occupancy rate declined to 86 per cent for flexible office provider Workspace (WKP) during the first half, an 8 percentage point decline on the end of March. However, the proportion of clients expanding versus those downsizing was approaching parity prior to fresh restrictions being introduced, said chief executive Graham Clemett. “We are actually starting to see a bit of a mood change in people we are doing deals with,” he added. 

The group gave over 90 per cent of tenants a 50 per cent discount during the first quarter, which weighed on trading profits. What’s more, weaker demand meant lower pricing for space, resulting in a 3.3 per cent decline in average rent per square/foot. “We price to demand,” said Mr Clemett. Maintaining occupancy is more important than holding pricing level, he added. Unsurprisingly, estimated rental values attached to the group’s properties declined 3.1 per cent on a like-for-like basis, and a 4.5 per cent fall in the value of the five recently completed projects. 

In its corner, the group has a firm balance sheet, with the ability to withstand a 52 per cent decline in net rental income and 61 per cent fall in asset values before covenants would be tested. The reimposition of tighter restrictions during November could hold back progress on a recovery in occupancy levels. Hold. 

Peel Hunt forecasts an adjusted net asset value of 935p at the end of March, recovering to 953p the same time in 2022.