Pimco has taken the first 106,000 sq ft prelet at the 300,000 sq ft 25 Baker Street, W1, meaning Derwent London has already signed more lettings in 2023 than it did for the whole of 2022.
Announcing its full-year results this morning, the London-focused developer said it had signed leases worth £9.8m in 2022. However, its 10 lettings since the start of this year have added a combined rent of £14.7m.
The 2023 lettings also include Buro Happold becoming the third major occupier for the Featherstone Building, EC1, with a 31,000 sq ft letting. The average lease term to break on these transactions is 13.4 years.
On a pro forma basis, the latest deals will reduce the operational EPRA vacancy rate to 5%, from 6.4% in December.
Pimco has taken levels five to nine at the 25 Baker Street development at an average £103 per sq ft. The lease is for a 15-year term without breaks. The project does not complete until H1 2025.
Derwent London said the project’s strong sustainability credentials played an important role in Pimco’s decision. 25 Baker Street is a net zero carbon building, with a target of BREEAM Outstanding and the developer’s first NABERS-rated building.
Pimco has an option to expand to include the 24,700 sq ft level four, which can be exercised up to 12 months prior to practical completion. The deal means the commercial element of 25 Baker Street is now 56% prelet or sold, not including Pimco’s potential expansion. The courtyard retail and Gloucester Place offices have been pre-sold to the freeholder, the Portman Estate.
Chief executive Paul Williams said the Pimco letting was “a substantial de-risking of 25 Baker Street two years ahead of completion”, and that the lettings demonstrated “the importance of well-designed space with strong amenity, environmental credentials and connectivity”.
Derwent London’s net rental income for 2022 was up 6% to £188.5m, while EPRA earnings were down 1.8% to £119.7m, or 106.6p per share. The total return was -6.3% against 5.8% in 2021.
The portfolio value dropped 6.8% to £5.36bn, split 57% “core income” and 43% “future opportunity”. The group completed three schemes from its development pipeline in 2022, totalling 450,500 sq ft. It has two major projects on-site – 25 Baker Street and Network, W1 – totalling 435,000 sq ft, which are due for completion in 2025.
It has submitted a planning application for a 240,000 sq ft scheme at 50 Baker Street, W1, a 50:50 joint venture with Lazari Investments, and is also refreshing its planning for the 150,000 sq ft Holden House, W1, scheme.
Derwent is also working on longer term plans for Old Street Quarter, EC1, which has the potential for a 750,000-plus sq ft mixed-use campus. Its acquisition of the site for £239m is expected to complete from 2027.
“In addition, we are planning to increase the volume of major refurbishment projects in the coming years where we see the opportunity to substantially raise ERVs reflecting increased quality, energy efficiency and sustainability credentials.”
Derwent London added that its portfolio was fully compliant with the EPC requirements due to come in this April. However, it is only 65.3% compliant with the expected 2030 requirements, which will insist on EPC ratings of C or above.
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