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Derwent raises rents forecast as central London property proves resilient

[LONDON] Derwent London, a central London office developer, raised its full-year rent guidance on Thursday after achieving a record level of new lettings in the first half, underscoring the resilience of the capital's commercial real estate market.

The company, which develops properties in areas such as London's popular West End, said it expected rental values to be between down 3 per cent and up 2 per cent, against a previous estimate of flat to down 5 per cent.

Derwent's confidence was underpinned by strong demand from tenants in the technology, media and telecoms (TMT) sectors, and its limited exposure to financial clients, which accounted for just 2.8 per cent of its rental portfolio, its head said. "We're just letting extremely well," Chief Executive John Burns told Reuters. "We've seen a lot of interest largely from TMT people. So there's no let up. It's very strong." The London office market has seen rents slip slightly and vacancy levels rise in the aftermath of the Brexit vote, which raised concerns that financial jobs will move elsewhere in the EU and that some tenants may defer investment decisions.

This has lead some developers to reduce the amount of speculative office space they are building without a guaranteed tenant, while Derwent cut its 2016 rental growth forecast and lowered the value of two London developments.

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The company said on Thursday it had achieved a record six months of lettings totalling £23.4 million (S$41.4 million), on average 0.5 per cent above estimated rental values at December 2016. "We believe Derwent remains in a good position to continue to navigate market uncertainty, with low financial risk and an office portfolio less exposed to new supply and financial services occupier risk," Liberum analyst David Brockton wrote.

Derwent posted a 0.9 per cent rise in net asset value to 3,582 pence per share for the six months to June 30 and hiked its first-half dividend 25 per cent to 17.33 pence.

Derwent, which had a portfolio worth about £4.8 billion as of June 30, also said it would advance with its next major development at Soho Place, above Tottenham Court Road underground station.

Mr Burns said the development, which would include offices, shops and a new theatre, had already attracted interest. "We're finding a lot of people approaching us ... and putting their name out as a possible tenant," he said, adding that the talks were with a "very wide spread of big companies"outside the financial sector.