Strategic Report Portfolio Review continued
On a like-for-like basis, occupancy has increased over the period to 82%. Portfolio activity At Grafton Gate, Milton Keynes, which was comprehensively refurbished last year, we retained two occupiers on lease expiry. Four leases were renewed, enabling us to increase the passing rent by 29% to a combined £0.6 million per annum, 11% ahead of ERV. At Tower Wharf, Bristol, we were pleased to welcome a new occupier to part of the first floor on a ten-year lease subject to break, at a rent of £0.2 million per annum, marginally below ERV. We also agreed the letting of the whole fourth floor to a new occupier, with the vacating occupier paying a premium of £0.2 million to facilitate the transaction. We currently have two suites available, which are being refurbished. The common areas were comprehensively refurbished last year, and we believe there is occupational demand which will come through as the year progresses. At 50 Pembroke Court, Chatham, we comprehensively refurbished a vacant floor with the majority of the cost being covered by the outgoing occupier’s dilapidations. The floor has been split with a third let to the Government on a ten-year lease, subject to break, at £0.1 million per annum, which is in line with ERV. At 50 Farringdon Road, London we surrendered a suite and immediately re-let it to an existing occupier who required expansion space at a rent of £0.2 million per annum, in line with ERV. The transaction met both occupiers’ requirements and potentially will allow us to enter into a longer lease in due course. In another transaction, we removed an occupier’s 2022 break option securing £0.2 million per annum, which is subject to review, until 2027 and in return provided the occupier with a rent-free incentive, which assisted their cashflow during the Covid-19 pandemic. Our largest office void is Stanford Building, London. We completed the refurbishment and enhanced the value of the office floors and obtained planning to convert the first floor from ancillary retail to office space. We have relocated to this floor, which provides a great working environment. We were pleased to welcome a new occupier
to the second floor on a five-year lease, subject to break, 5% ahead of ERV. Outlook Working from home as a result of the Covid-19 pandemic has caused a huge amount of business uncertainty; however, this is beginning to ease and the initial reaction of businesses thinking of disposing space is now being reconsidered. We believe the flight to quality has been accelerated by the pandemic, with businesses wanting to provide best-in-class space to attract their staff back to the office. Sustainability is also now a key factor in choosing a building and older stock, where the capital expenditure required to upgrade is prohibitive, will be converted to other uses. The regions have outperformed London, primarily we believe due to people not wanting to commute on public transport. We can see a push to get people back to the office later this year, with companies embracing a more flexible policy in respect of working from home. We have invested £9.7 million into our office portfolio over the last three years, creating high quality contemporary space and occupier amenities, meaning our buildings remain attractive to occupiers. We have 36 lease events forecast for the coming year, with the current ERV for these units being 1.8% higher than the current passing rent of £2.5 million and an 18% void, with an ERV of £3.4 million, providing us with the opportunity to significantly grow income and value.
Office
The office sector, which accounts for 36% of the portfolio, delivered the second strongest performance of the year, with the regions outperforming London. With limited occupational demand due to the Covid-19 pandemic, our focus has been occupier retention and marketing our vacant properties using virtual tours and socially distanced viewings. We have been able to lease space in a difficult market, securing £1.1 million of income, and have worked with our occupiers to extend income and surrender leases where we can secure a premium and immediately re-lease the space. On a like-for-like basis, our office portfolio value declined by £13.8 million or -5.3% to £245.4 million; however, the annual rental income increased marginally by £0.3 million or 2.0% to £13.1 million. The portfolio has an average weighted lease length of 3.5 years and £5.9 million of reversionary potential. Although occupational demand has been muted, it has been stronger in the regions than in London. The ERV of the portfolio has remained static over the year, with declines in London of -2.9% being offset by increases in the regions of 0.9%. We invested £4.1 million into our office assets during the period and completed key projects, including at Tower Wharf, Bristol, 50 Pembroke Court, Chatham, and Stanford Building, London. We have had letting success at all three buildings.
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