Workspace Group profits surged as employees return to the office as normality resumes after Covid restrictions
- Workspace profits jumped to £35.8m in the six months to September
- Workspace noted that it is “currently seeing continued levels of good demand”
- Land Securities revealed on Tuesday that it suffered a half-year loss of £192million
Workspace Group saw its profits increase more than tenfold following a rise in real estate revaluations and a continued rebound in rental income.
Profits for the property investment trust totaled £35.8m in the six months to September, compared to just £3.4m in the equivalent period last year.
Higher prices and occupancy levels helped drive the vast majority of profits as the lack of Covid-related restrictions in the UK led to more companies encouraging their employees to return to their offices.
Return: The absence of Covid-related restrictions in the UK has led to more companies encouraging their employees to return to work in offices this year
Net rental income rose 36.8% to £56.1m, with just under half of the growth coming from the McKay Securities business, which Workspace acquired in May.
This pushed trading profit after interest up by a third to £29.1m, but unlike last year overall profits were higher thanks to an £8.1m increase from the fair value of its investment properties.
Property consultants CBRE and Knight Frank estimated the company’s holdings at £2.86bn, up from £2.4bn at the same time in 2021.
The FTSE 250 group also benefited from the sale of a Newbury medical center it bought from McKay, while a separate development in Wandsworth is set to complete its £55million sale in January.
Workspace further expects rental income to increase further in the second half of the financial year, but warned that inflationary pressures will lead to higher service charges and administrative costs.
Much of the recent increase in administrative costs stemmed from 3% salary increases for staff, although junior employees received larger increases and higher share-based payments.
Valuation: Property consultancy firms CBRE and Knight Frank have estimated Workspace Group’s holdings at £2.86bn, up from £2.4bn at the same time in 2021
Workspace also told investors that the company is “currently experiencing continued levels of good demand,” while energy costs are covered for the next two years and rental collection rates are close to 100%.
Graham Clemett, Managing Director of Workspace, said: “Despite the current economic challenges, we are well positioned to deliver a strong business performance for the full year.
“We have good rental growth momentum in the first half and we are seeing resilient customer demand in the second half.
“We will continue with our divestiture program where the reduction in divestment income will be offset by a similar level of interest expense savings.”
Shares of Workspace Group closed down 1.9% at 472.4p on Tuesday, meaning their value is down around 43% over the past 12 months.
Land Securities also released its latest interim results today, although they were far less positive than Workspace’s trading update, with the business slumping to a loss of £192m, after posting a profit of £275 million the previous year.
The listed company, which owns the Bluewater shopping center in Kent and One New Change near St Paul’s Cathedral, attributed the loss to falling valuations of its London office buildings.
Businesses have been more reluctant to rent office space in prime locations across the UK as increases in Bank of England interest rates amid the wider cost of living crisis have driven down the request.
This latest struggle facing the commercial real estate industry adds to the problems it is experiencing from the rise of hybrid working and online shopping accelerated by the coronavirus pandemic.