Shares in office property companies Derwent London (DLN) and IWG (IWG) rose in tandem, the former gaining 2% to £37.89 as it posted upbeat interim results while the latter gained 2.4% to 327p despite cautioning that occupancy levels were below expectations.
Derwent, which generates most of its rental income from London offices, said rent collection was almost back to pre-Covid levels in the first half, while its average estimated rental value dropped just 0.3% which was at the top end of its guidance.
Its vacancy rate rose marginally to 3.3% at the end of June, but after an increase in second half lettings is back down to just 2.4% of its portfolio.
BOUNCING BACK
‘London's business confidence and economy were stronger than expected in the first six months, helped by the successful roll out of the UK's vaccination programme’, commented chief executive Paul Williams.
‘In our sector this has been reflected in increased property activity levels and the tightening of property yields. We expect these trends to strengthen further in the second half now that most lockdown restrictions have been lifted.’
Derwent posted net rental income of £90.1 million, a 6.7% increase on last year, and earnings of £60.6 million or 54p per share, up 10.5% on last year. It also raised the interim dividend by 4.5% to 23p per share.
SLOW RECOVERY
In contrast, IWG - which rents and sells office space globally - reported a 15.3% drop in revenues in the first half to £1.066 billion and an after-tax loss of £172.6 million or 16.9p per share.
It also increased its provisions for expected credit losses by £12.4 million to reflect ‘the greater likelihood of credit default by the group's debtors directly attributable to the impact of Covid’.
While it said it saw a ‘strong’ recovery in occupancy in the second quarter, average occupancy during the half was just 68.4% compared with 75.3% last year.
Where IWG did see a pick-up was in meeting room and day office usage, with revenues accelerating roughly 40% between the first and second quarters due to what it called ‘unprecedented’ demand for hybrid working as more firms look at more flexible ways to use office space.
‘This fundamental shift in the way people work is clearly a positive tailwind for IWG over the medium to longer term, and we are seeing increasing levels of interest from enterprises wishing to transform their working practices’ said chief executive Mark Dixon.
However, while looking forward to the second half ‘with cautious optimism’, Dixon admitted that ‘the speed of recovery in occupancy across the whole group has been lower than originally anticipated which, given the operational gearing of the business, will have a significant impact on the Group's performance for 2021’.
