Last updated 7 March 2023
Derwent London Plc
Derwent London is the largest central London-focused real estate investment trust (REIT) with a portfolio of 5.5 million square foot and is valued at around £5.4 billion. The group was created in 2007 from a merger between Derwent Valley and London Merchant Securities and is quoted on the London Stock Exchange and a member of the FTSE 250 index.
Financials
In the 2022 calendar year, the group reported gross property and other income of £248.8 million (2021: £240.2 million) and reported an operating loss of £238.3 million (2021: £291.6 million profit). Before tax, Derwent London made a loss of £279.5 million (2021: £252.5 million).
To view the financials for Derwent London, visit Companies House and use Company ID 01819699.
Operations
The group”s strategy is to buy buildings off-market, which are occupied and have scope for improvement and provide reasonable yields.
More than two thirds of Derwent London’s portfolio is in relatively resilient West End Market and the bulk of it is either in the ”tech belt’ running from King’s Cross to Whitechapel or is close to Crossrail. Landmark buildings in the group’s portfolio include Angel Building EC1, 19-35 Baker Street W1 and White Collar Factory EC1.
The group largely seeks to de-risk projects and has developed some projects through the planning system then sold them off, such as Wedge House, where detailed permission was secured for a 110,000 square foot mixed-use development before the site was sold for £33.5 million in 2015. Construction was then started by the new owners, Ennismore (Project ID: 15046872).
In 2022, the group let 163,000 sq ft of space, signed 10 new leases and 450,000 sq ft of space was completed on three major projects. The two largest developments – Soho Place and the Featherstone Building (Project ID: 15273575) – provided 412,300 sq ft of space, while the refurbishment of Francis House provided 38,200 sq ft of space. Derwent London also started out several small refurbishments, such as the £10.2 million Henry Wood House (Project ID: 20491057) and a £1.8 million refurbishment of 90 Whitfield Street (Project ID: 22013356).
At the end of 2022, Derwent London was on site with two major projects expected to produce 435,000 sq ft of space: 25 Baker Street (Project ID: 16450552) and the Network Building (Project ID: 20495354).
Glenigan Data
In the 2022 calendar year, Derwent London awarded main contracts totalling £255.2 million (2021: £11.4 million).
Conclusion: Spending moves apace
In 2021, Derwent London decided after a strategic review to retain larger modern developments for longer and to dispose of non-core properties and has made good progress against this strategic objective, which gives the business firepower for further development and future investment opportunities.
In 2022, the group spent £133.0 million on acquisitions, including the 60,400 sq ft 230 Blackfriars Road site, and £121.8 million on capital expenditure and sold several non-core assets above book value for £206.4 million. Disposals include the 70,700 sq ft New River Yard, the 18,400 sq ft 2&4 Soho Place and Bush House, which offered 103,700 sq ft of space. A further £53.6 million was raised from the sale of the 63,200 sq ft 19 Charterhouse Street in Q1 2023.
Despite these sales, the group does face extra costs in bringing its existing office space up to meet recent EPC legislation, which is now expected to cost around £99 million. However, Derwent London is also spending to produce future savings and secured planning consent for the development of the 100 acre, £10 million Caledonia Solar Park (Project ID: 21460636). This 18.4MW solar park on land owned by the group in Scotland is expected generate more than 40% of the electricity needs of its London managed portfolio.
The lumpy nature of property development means that Derwent London drops in and out of Glenigan’s ranking of the construction industry’s top 100 clients. After a rash of activity in 2018, Derwent London surged to thirteenth position with awards totalling £266.3 million, but dropped out of this ranking in 2019.
Spending on major developments was reigned in during the worst of the pandemic, but the recent resurgence has returned the group to the top 100 and in 2022 Derwent London was ranked in 23rd position. Glenigan’s research shows that the average contract awarded by Derwent London leapt to £42.5 million (2021: £2.9 million).
The development pipeline features four key schemes set to deliver 390,000 sq ft of space. These include the development of 240,000 sq ft of space at 50 Baker Street with Lazari Investments and a planning application has been submitted (Project ID: 22373409).
The office market had not been following usual trends over the past 30 years before the pandemic and investment yields remained firm even though rental growth slowed. Derwent London believes that a two-tier market is emerging and the rise in vacancies is mainly at poorer quality developments, hence the sale of non-core assets.
Going forward, the group expects to invest in quality and as the UK’s population returns to work. the West End will remain the main focus for Derwent London’s development activities. More than a third of the firm’s portfolio is in an arc – so-called the ”tech belt” – running from King””s Cross via the City to Whitechapel, which is a popular location for internet-based entrepreneurs.
Bringing forward its zero carbon building target by two decades to 2030 is a major challenge for Derwent London and its construction supply chain, but given the size of its major projects pipeline, the group will remain a major force on the London commercial development scene.
Winning Work With Derwent London Plc
Derwent London puts a strong emphasis on sustainability and its business model involves five key strands which cover: creating well-designed spaces, optimising income, acquiring property and unlocking its potential, recycling capital and maintaining robust and flexible financing.
The group works with major contractors, such as Laing O’Rourke, Kier and Keltbray and smaller companies such as Knight Harwood and The Thornton Partnership. Architects that Derwent London works with include Allford Hall Monaghan Morris and Ben Adams, while Gerald Eve is used regularly for planning advice.
Key Derwent London procurement contacts include:
Head of Development – Richard Baldwin, tel: 020-7659-3000
Richard.baldwin@derwentlondon.com
Head of Design + Innovation – Benjamin Lesser, tel: 020-7659-3000
Benjamin.lesser@derwentlondon.com
Project Development Manager – John Turner, tel: 020-7659-3000