Investor and developer CLS has recorded a 5.9% year-on-year increase in net rental income in the six months ended 30 June to £58.9m.
The boost in income was led by strong performance in the group’s hotel and student accommodation operations, plus the retention of a deposit from the initial failed sale of Westminster Tower to Australian investor Third.i in March. The office building, at 3 Albert Embankment, SE1, was eventually sold to London Square in April for £40.8m.
CLS chief executive Fredrik Widlund said: “In the first half of 2024, CLS made strong progress on its strategic priorities and delivered good underlying performance across the portfolio. Net rental income was up over 5% with new leases signed nearly 6% above ERV such that this positive leasing momentum resulted in a slight fall in underlying vacancy. Valuations were lower but the rate of decline slowed and we are seeing values start to bottom as the challenging conditions begin to ease.”
The value of CLS’s portfolio, which includes assets in the UK, Germany and France, fell from just over £2bn to £1.9bn year-on-year. Vacancy rates across the portfolio increased from 11% at the end of 2023 to 13.2% at the end of H1 2024, owing to the completion of refurbished space.
Widlund said he expected further letting success and therefore an improvement in vacancy rates during the year, citing the debut deal at Artesian, its 91,000 sq ft refurbishment of 9 Prescot Street, E1. The landlord has just secured a 10-year lease on 12,000 sq ft with Médecins Sans Frontières for its UK headquarters at the building.
During the period under review, CLS secured 225,009 sq ft of lettings and renewals and lost 221,838 sq ft of space as a result of expiries.
“We see considerable opportunities within the portfolio to drive rental growth and valuation increases in all three of our geographies,” said Widlund, “the largest being Spring Gardens in Vauxhall, for which the planning process for a mixed-use development is advancing well. Overall, there are encouraging signs in the market for quality offices in the right locations.”
The group posted a pretax loss of £61.1m in H1, down from a loss of £104.1m in the same period in 2023. The improvement was a result of lower revaluation losses of £82.8m and higher net finance expenses of £20.8m, said CLS.
Looking ahead, Widlund said there were signs of improvement in the real estate investment market and that leasing activity continued to be positive, with occupiers increasingly prepared to commit to the right locations and buildings.
“As we have seen in past cycles, the UK entered the downturn earlier and is now ahead in its recovery, while Germany and France are a bit further away,” said Widlund. “We remain confident that in responding to the market demands by having some of the best properties in our locations, alongside an expectation of more favourable monetary policy, CLS is well placed to capitalise on these trends and remain successful.”
Photo © Gerd Altmann/Pixabay
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