Strategic Report
Financial Statements
Additional Information
Governance
The value of the office portfolio has increased on a like-for-like basis by £5.7 million or 2% to £251.1 million and the annual rental income increased by £0.8 million or 6% to £14.0 million. Occupancy within the office sector has increased from 82% to 87%. We have secured £2.9 million per annum from lettings and have worked with our occupiers to extend income elsewhere. The office portfolio has an average weighted lease length of 4.0 years and £5.3 million of reversionary potential. The ERV has increased slightly over the year, which is mainly due to regional offices with London being stable. The impact of the global pandemic on working practices continues to be felt, however this varies dramatically from business to business. Occupational demand has picked up, especially for better quality space as businesses return to the office and review their requirements. We have launched our SwiftSpace offering in order to meet the need for more flexible space requirements in a post-Covid-19 environment. From a regulatory standpoint, the Welsh Government retained their work from home policy until the end of our financial year, and this had an impact on demand for our Cardiff building. We invested £6.2 million into our office assets during the period. Key projects were completed at Angel Gate, London, 50 Farringdon Road, London, 180 West George Street, Glasgow and Longcross, Cardiff. Portfolio activity At 50 Farringdon Road, London, we extended a lease, due for expiry later this year. This was our largest lease event in the office sector retaining £0.6 million per annum, which is 2% ahead of ERV. The transaction follows an upgrade of the heating and cooling system last year, transitioning from gas to electric, reducing carbon emissions from the building and upgrading the EPC from a D to a B. At 180 West George Street, Glasgow, following a comprehensive refurbishment of the first, fifth and sixth floors to include new external roof terraces, we leased all three floors to separate occupiers, securing a combined rent of £0.6 million per annum, 19% ahead of ERV. This is a good example of occupiers seeking best in class space for their employees. In Chatham, we completed the letting of all the remaining space at 50 Pembroke Court to NatWest at £0.3 million per annum, 8% ahead of ERV, for a term of five years, subject to break. In line with the occupier’s sustainability policy the refurbished floor achieved a B-rated EPC. Following the completion of the refurbishment of Stanford Building, London, we leased the remaining two office floors to a recruitment company, securing a rent of £0.5 million per annum, 3% below ERV but reflecting a longer ten-year lease commitment. We also leased the flagship retail unit, which is covered in the Retail and Leisure section. At Colchester Business Park, we renewed three leases securing a combined rent of £0.4 million per annum, an 11% increase on the previous passing rent and 1% ahead of ERV.
Two large occupiers vacated towards year end, and we are therefore refurbishing this space. We expect good levels of demand on completion of the works. At Grafton Gate, Milton Keynes, we retained an occupier on lease expiry and removed two break options in return for taking back one suite this summer. The combined rent secured was £0.4 million per annum, 5% ahead of ERV. One rent review was agreed, securing a 33% increase to £0.2 million per annum, 4% ahead of ERV. Our largest office void is Angel Gate, London, which has suffered from smaller businesses choosing to work from home during the pandemic and only now beginning to look to return to the office. The common areas have been redesigned and we have converted a ground floor office suite into an occupier lounge that has proved attractive to occupiers. We renewed two leases during the year for a combined £0.2 million per annum, 19% ahead of ERV and relocated four occupiers, all of whom upgraded their space and we let one fully fitted suite, securing a combined £0.4 million per annum, 5% ahead of ERV. We are beginning to see enquiries rise and believe our SwiftSpace option is attractive to occupiers looking for this type of flexible space. Outlook As we predicted, we are seeing a flight to quality with businesses looking for best in class space to attract their employees back to the office. The majority of businesses have moved to a flexible working pattern, with employees working from home one or two days a week. This means they still require office space for all of their staff, and we have not seen a lot of second hand space being put on the market. Sustainability is an ever-increasing factor in choosing a building and older stock, where the capital expenditure required to upgrade is prohibitive, will be converted to other uses. We have invested £15.2 million into our office portfolio over the last three years, creating high quality contemporary space with occupier amenities that offer flexibility in workspace planning, meaning our buildings are attractive to occupiers as demonstrated by our leasing success. We have 33 lease events forecast for the coming year, with the current ERV for these units being 4% higher than the current passing rent of £2.6 million and a 13% void, with an ERV of £2.5 million, providing us with the opportunity to significantly grow income and value.
Angel Gate
Refurbished offices
Picton Property Income Limited Annual Report 2022
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