Broadgate REIT Ltd

Broadgate REIT Limited

(the “Group”)

Please find attached the Financial Statements for the Group period ended 31 March 2024.

The Group also provides the following information by way of a trading update at this time:

Overview

Market Backdrop

Macro-economic backdrop

In the past 12 months macroeconomic and geopolitical uncertainty has remained high. However, inflation has declined, and markets are now anticipating interest rate cuts. Consequently, yield expansion in the portfolio slowed significantly in the second half and strong rental growth meant values were broadly flat.

Our base case is that we will be operating in a more supportive economic environment over the next 12 months than we have seen in the last two years. With inflation lower, the next move in the base rate is likely to be down rather than up and although UK GDP growth is expected to be modest at best, most forecasts are for it to be positive. Unemployment is expected to remain low which should be supportive of demand for best-in-class workspace at our campuses as businesses continue to focus on attracting and retaining talent in a competitive jobs market. The return of real wage growth should provide valuable breathing space for consumers, supporting our retail parks business.

We recognize geo-political risk remains elevated, but we take comfort from our strong operational performance over the last 24 months.

London Office Market

Take up over the last year for new and refurbished space in core Central London was 12% ahead of the 10-year average, even though take up of all space across London was 13% behind the 10-year average. The forward-looking indicators are also encouraging with under offers, a key measure of demand, in core Central London significantly increasing at the start of the year to 3.2m sq ft, 24% above the 10-year average. Furthermore, active demand in core Central London is at 13m sq ft, and super prime deals are 36% above. The picture is even more positive in the City, with under offers on all space at the highest level in 24 years at 2.2m sq ft, 54% ahead of the long term average.

Supply is constrained across London, with vacancy for the best space and the rest continuing to diverge. Vacancy for new or refurbished space in core Central London is at 1%, while vacancy for second hand space outside of core Central London is 11%. This is also true of the City submarket, with average expected annual development completions of 1.3m sq ft per annum over the period 2024-2027 compared to the 10-year average annual take up of 2.1m sq ft. The result is that we are seeing strong rental growth for super prime (top 10% of space) in the City, with Cushman & Wakefield forecasting super prime rents in the City to grow by c.8% per annum over the next four years.

Investment markets were subdued. Total volumes were £6bn across the City and West End compared to c.£10bn in the same period last year. City investment levels remain low.

Operational review

Broadgate saw a valuation decline of 6.2% driven by outward yield shift of 45 bps, offset by ERV growth of 4.4%. Occupancy remains high at 98%, reflecting the high quality of the space, amenities and public realm and its central location. 

Leasing activity (excluding Storey) covered 328,000 sq ft, of which 304,000 sq ft were long term deals, 5.3% ahead of ERV. Significant deals include regears to Monzo Bank at Broadwalk House covering 83,000 sq ft and the Bank of Nova Scotia at 201 Bishopsgate covering 39,000 sq ft. New lettings have also been signed with Steamship Mutual, which signed for 25,000 sq ft of newly refurbished space at 155 Bishopsgate and Vorboss which has signed 29,000 sq ft at 10 Exchange Square. 

Post period end, we have also signed a pre-let with Citadel for 252,000 sq ft of workspace at 2 Finsbury Avenue, with options to lease up to another 128,000 sq ft. The deal means the building is already 33% pre-let at a minimum, and 50% pre-let if the option space is taken, at a record headline rent for the City. Simultaneously, we have committed to the 2 Finsbury Avenue development at Broadgate.

We are making good progress on asset management initiatives to improve the sustainability credentials of several buildings on the campus. 10 Exchange Square, 199 and 201 Bishopsgate have all achieved EPC ‘B’ ratings due to building improvements including air source heat pumps, air handling unit improvements and LED lights.

Storey: British Land’s flexible workspace offer

Storey is a key part of our campus proposition and provides occupiers with the flexibility to expand and contract depending on their requirements. The quality of the space, central location and access to campus amenities make the space appealing to scale up businesses and overseas businesses looking to open a UK Headquarters. Customers on our Broadgate campus also benefit from access to ad hoc meeting and events space at Storey Club and this service is an increasingly important factor when making workspace decisions.

We recently completed 35,500 sq ft at 201 Bishopsgate on our Broadgate campus.

Developments

The development of 1 Broadgate is progressing on programme and the office space is fully pre-let or under option to JLL and Allen & Overy, demonstrating the strong demand for best in class, sustainable buildings. Post period end, we committed to 2 Finsbury Avenue delivering 750,000 sq ft of best-in-class workspace at Broadgate.

Social Sustainability

Our social impact initiatives continue to focus on forging connections between our occupiers and local communities and we were pleased to have run a successful pilot of the Social Mobility Business Partnership’s Insights and Skills Programme alongside one of our occupiers. Through the Young Readers Programme, in partnership with the National Literacy Trust, 32 school children participated in activities across the campus. This year we published a socio economic report quantifying £10m of economic value over the last 10 years of our long running dedicated employment programme Broadgate Connect and in the last year 54 people have benefitted from meaningful employment support.

SUPPLEMENTARY TABLES

Committed Developments

1. Estimated headline rental value net of rent payable under head leases (excluding tenant incentives)
2. Gross yield on cost is the estimated annual rent of a completed development divided by the total cost of development including the site value at the point of commitment and any actual or estimated capitalisation of interest, expressed as a percentage return.
3. Committed to post year end