Workspace Group’s profits blossom as employees return to the office

Workspace Group has increased profits more than tenfold due to an increase in real estate revaluations and a continued recovery in rental income.

The property investment trust’s profit was £35.8m in the six months ended September, up from just £3.4m in the same period last year.

Higher prices and occupancy rates contributed to the vast majority of gains as the absence of Covid-related restrictions in the UK led to more companies encouraging workers to return to offices.

Net rental income rose 36.8 per cent to £56.1 million, with just under half of the growth contributed by McKay Securities, which acquired Workspace in May.

This boosted profit after interest trading by a third to £29.1m, but in contrast to last year overall profits were higher thanks to a £8.1m increase in the fair value of the investment properties.

Property advisory firms CBRE and Knight Frank estimate the company’s assets at £2.86 billion, compared to £2.4 billion at the same time in 2021.

The FTSE 250 group also benefited from the sale of a Newbury medical center it had bought from McKay, while the sale of a separate project in Wandsworth is expected to be completed in January for £55m.

Workspace also predicts a further increase in rental income in the second half of the fiscal year, but warned that inflationary pressures would lead to higher service costs and administrative burdens.

Much of the recent increase in administrative costs is due to salary increases of 3 percent for staff, although younger employees have received bigger raises and higher share-based payments.

Workspace also told investors that the company is “seeing continued good demand right now,” while energy costs are covered for the next two years and rent collection is close to 100 percent.

Graham Clemett, CEO of Workspace: “Despite the current economic challenges, we are well positioned to deliver a strong trading performance throughout the year.

“We have good momentum from rental growth in the first half and we see resilient customer demand in the second half of the year.

“We will continue our divestment program where the reduction in income from divestments will be offset by a similar level of interest cost savings.”

Workspace Group Shares closed trading 1.9 percent lower at 472.4p on Tuesday, meaning their value is down about 43 percent over the past 12 months.

Land Securities also reported its latest interim results today, although they were much less positive than Workspace’s trading update, which saw the company tumble to a loss of £192m after making a profit of £275m last year.

The listed company, which owns the Bluewater shopping center in Kent and One New Change near St Paul’s Cathedral, blames the loss on the falling valuation of its London office buildings.

Businesses have become more reluctant to rent office space in prime UK locations as interest rate hikes by the Bank of England amid a wider cost-of-living crisis have depressed demand.

This latest battle facing the commercial real estate industry comes on top of the difficulties it is experiencing from the rise in hybrid working and online shopping accelerated by the coronavirus pandemic.