Take advantage of Derwent's undeserved discount

Derwent has been sweating its development portfolio, gradually letting space across its three sites and boosting the portfolio’s NAV. Having completed and fully let the Brunel Building earlier this year, at the end of September it was left with 790,000 square foot (sq ft) under construction, 70 per cent of which was pre-let.  80 Charlotte Street is due for completion during the first half of 2020 and is 92 per cent pre-let. Derwent's Soho Place development, meanwhile, is 76 per cent pre-let and due for completion in the first half of 2022, as is the group's other active project, the Featherstone Building. So far this year, Derwent has agreed lettings totalling £33.5m on 486,600 sq ft of space, on average 7 per cent above December 2018 ERV. Meanwhile, vacancy rates at the end of September stood at just 0.6 per cent compared with 1.8 per cent at the end of December. 

Disposals of £182m – 6.2 per cent above their December 2018 valuation – also indicate solid demand for office space in the city. These proceeds have been partly invested back into funding developments as well as reducing debt. That, coupled with a 2 per cent rise in the value of the portfolio, meant the group's loan-to-value ratio stood at just 16.4 per cent at the end of September, based on property values at the half-year stage. That means the portfolio is more defensively positioned in the event there is a reduction in property valuations amid an economic downturn. 

However, while the gradual letting of developments has reduced the risk attached to the portfolio, it also means there is less potential for developments to boost rents and NAV in the years ahead.