Shaftesbury Capital, a real estate investment trust (Reit) says demand for space at its West End localities is high, with the combined portfolio showing resilience.
In a trading update on Wednesday, the company said the integration of its business and teams is progressing well. Shaftesbury Capital is the merger between Capital & Counties Properties and Shaftesbury PLC, completed on March 6.
The London and the JSE-listed company is the leading central London mixed-use Reit and is a constituent of the FTSE-250 Index.
Its property portfolio is valued at £4.9bn with about 2.9-million square feet of lettable space in Covent Garden, Carnaby, Soho and Chinatown in London’s West End.
CEO Ian Hawksworth, said during the first 100 days of Shaftesbury Capital, the business integration is progressing well. “We are encouraged by operational progress, prospects for our prime West End portfolio and the benefits we are seeing from the combined platform.”
Hawksworth said that over the five months to May, demand for space across all uses in the West End resulted in the signing of 173 leases at rentals above 6%, ahead of the December 2022 estimated rental value (ERV). This provides confidence for rental growth prospects.
The leases, with a combined rental value of £11.4m, comprise 74 commercial lettings and renewals (£7.9m) at 7% ahead of ERV, and 99 residential lettings (£3.5m) at 9% above previous passing rents. Shaftesbury Capital also concluded 35 commercial rent reviews with rentals valued at £6.4m at 7% ahead of previous passing rents.
Hawksworth said the company would continue to focus on growth in cash rents capturing the reversion between gross income of £178m and the valuers’ ERV of £227m, as well as generate sustained ERV growth, initially back to its pre-pandemic level of £258m.
“Our approach, informed by a broad base of experience and deep knowledge of the West End across a larger platform, positions the business to deliver rental growth from its exceptional portfolio.”
He said there was healthy demand for high-quality offices across the West End, adding that the Carnaby and Covent Garden development pipeline was well-positioned to capture this demand due to its high amenity value and green credentials.
The scheme at 36 Carnaby Street completed, and is now fully pre-let or under offer, representing £900,000 of income, with rental of about £100 per square foot.
“With sustained demand for our residential portfolio, any space which becomes available typically goes under offer within a matter of days, and we are continuing to see improving rental levels,” Hawksworth said. Only seven residential units were vacant at the end of May.
Across the retail, hospitality and leisure sector, trading remained strong with sales in aggregate 13% above 2019 on a like-for-like basis. With the increase in tourist numbers in the West End, footfall has remained positive.
The EPRA vacancy — that is the ratio of the estimated market rental value of vacant spaces against the estimated market rental value [including units under offer] — was about 5% of portfolio ERV; 2.1% was under offer and 2.9% was vacant at the end of May.
During the same period, the ERV of space held for, or under refurbishment in the wholly owned portfolio, amounted to £16m across 234,000 square feet, representing 7% of portfolio ERV.
Hawksworth said they continued to introduce new retail brands and concepts across the portfolio including the likes of luxury watch brand Tissot on James Street, and contemporary fashion brand Sessun on Floral Street, Covent Garden, while in Carnaby, Hollister and OG Kicks have opened on Foubert’s Place. Additional brands include the new flagship Uniqlo store as well as Gramicci in Covent Garden and Farah in Soho, with Mejuri and Hoka expected to open soon.
Recent restaurants openings include Story Cellar at Neal’s Yard, in Covent Garden and Gaucho on James Street in Covent Garden. Imad’s Syrian Kitchen, which opened in 2021, has taken up a larger space at Kingly Court in Carnaby where the newly opened Darjeeling Express is situated. Pan-Asian restaurant concept, YiQ signed its debut restaurant in Chinatown.
At the end of May, group net debt was £1.5bn with a loan-to-value of 31% based on December property valuations, with more than £440m of liquidity.
Shaftesbury anticipates capital recycling of about 5% of the portfolio value.
For the forthcoming period, Shaftesbury will prioritise the refinancing of medium-term maturities, which include the loan facility of £576m drawn down in full in April 2023 to fund redemption of the Chinatown and Carnaby Bonds, and to evolve the capital structure of Shaftesbury Capital for the longer term, taking advantage of the enhanced credit profile.
Good progress on the integration has resulted in annualised cost savings of about £7.5m — ahead of the phasing set out in the merger documentation. The company expects to locate in a single office in Covent Garden over the autumn.
Shaftesbury will release its half-year results for the period ending June on August 3.
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