Good morning, everyone, and thank you very much for joining us. Great to have a nice turnout in the room. Probably helpful the Tube strikes were called off. I was a bit worried we'd be presenting to ourselves, but no, here we go. Today, we'll follow the usual running order. I'll start with a strategic update. David will take you through the financial performance and our attractive earnings outlook. Over the next 30 minutes, you'll see how this is driven by 2 things. First, our market-leading positions in sectors with strong fundamentals, and second, our active approach to asset management. We've long believed that hands-on asset management is a key source of outperformance. Never has that been more evident, and Kelly Cleveland will give you some great examples later. Let me start with the occupational fundamentals of our markets and our competitive positioning within them.
Our Campuses and Retail Parks now represent 90% of our business, and they're market leading, both in scale and in quality. I'm struggling to remember a time when the occupational fundamentals were as favorable as they are today, with net absorption very strong and supply constrained in both our markets. Together with our active approach to asset management, this is translating into attractive ERV, like-for-like, and earnings growth. This underpins our conviction in delivering 8%-10% total accounting returns through the cycle. I thought it'd be helpful today to touch on two topical themes: inflation and artificial intelligence. As we all know, inflation rose dramatically after the invasion of Ukraine. Conflict in the Middle East is likely to exert further upward pressure on prices. How much of this inflation are we likely to capture in our rents? To answer this, let's look at the portfolio performance since 2022.
Over this period, our ERV growth has tracked inflation and just recently overtaken it, and we've delivered top quartile total shareholder returns. That's down to having well-located, high-quality assets in sectors with strong occupational fundamentals. This is the important bit. We expect to outperform inflation going forward and are guiding to ERV growth of 3%-5%. Let's delve into the fundamentals in more detail, starting with the London offices. This is where I want to touch on my second theme, AI. There's a very live debate about AI's potential impact on white-collar jobs. Will this be like previous waves of technological change, the PC, the internet, the smartphone, where new jobs were created faster than old ones disappeared? Will it be different this time?
The reality is nobody knows for sure. As ever, we will stay very close to our customers to be the first to understand what is happening. In the meantime, I think we can say with a high degree of confidence that soft skills will be at a premium and a new generation of companies will want the best physical environments for these skills to flourish in. Our Campuses should sit right at the heart of this. If we look at the facts as they are today, net absorption of space, which is 1 of the best measures of the health of demand, is at a record high. For every company downsizing, 4 are upsizing. This is driven by a strong return to the office and significant growth from a new wave of AI businesses. Despite geopolitical uncertainty, the forward-looking indicators are very positive.
Demand is 57% above the 10-year average, and underoffers are 50% higher than this time last year. This demand is meeting a severe supply crunch driven by initial fears about the effect of hybrid working, increased construction costs, and higher yields. The crunch is particularly acute in the City, where vacancy for new and refurbished space is forecast to fall below 2% and remain there for the next four years. Historically, when we've seen this, rents have grown at around 10% per annum. Our campuses are ideally positioned to benefit from this environment. As you know, they offer exceptional product next to major transport nodes, with rich amenity and space that supports companies at every stage of their growth, from Storey through work-ready to global HQ space. The results speak for themselves: a record GBP 143 million of leasing last year.
To put that into perspective, we represent around 5% of the London office market but were 15% of last year's reported leasing and 33% in the fourth quarter. I've said before, the campus proposition is particularly attractive to science and tech businesses. In 2024, we set out a strategy to increase our weighting to this sector. We believed it would be a key growth driver of the U.K. economy. What we didn't fully anticipate was quite how powerful a tailwind AI would prove to be. Growth across AI and data sciences has accelerated, particularly over the last 12 months, and the lead indicators are very compelling. If you take a look at the U.S., leasing activity in the San Francisco Bay Area reached 11 million square feet last year, the highest since 2017. There's another 3.8 million square feet in the first quarter of this year.
These businesses are now expanding internationally, and London is very clearly the leading destination. That's due to the fantastic talent on offer. We're currently tracking 2.5 million sq ft of active demand. The Knowledge Quarter sits right at the center of this activity British Land Company, as you can see on this slide. That's benefiting Regent's Place. We've rapidly grown the number of innovation occupiers across our portfolio. Our acquisition of Life Science REIT adds further high-quality assets in the Golden Triangle, serving a wide range of occupiers, such as Wayve in autonomous vehicles, Oxford Ionics in quantum computing, or Thought Machine in banking payments. On a pro forma basis, science and tech now represents 35% of our campus footprint. The name Life Science REIT understates the opportunity, which spans the entire science and tech ecosystem.
Labs represent just 6% of the acquired portfolio, and interestingly, there are no life science companies among the top five occupiers, which together account for 50% of the rent roll. The acquisition delivers attractive economics unlocked through our scalable platform. We expect meaningful cost synergies through the elimination of corporate costs and efficient onboarding of assets. The acquisition is immediately earnings accretive, and we expect further earnings growth through capturing reversion and leasing vacant space, particularly at Oxford Technology Park, where much of the space is newly delivered. We've already made excellent progress in our first month of ownership, as you'll hear from David. Crucially, earnings accretion was achieved with no impact on NTA. I'm sometimes asked how we manage the higher covenant risk associated with smaller science and tech companies. In practice, we've seen very few failures, as you can see, but risk management remains critical.
Smaller, higher-growth occupiers typically take Storey or work-ready space on shorter leases with limited rent-free periods supported by rent deposits. Because the fit-out is generic, if a tenant does fail, we can re-let quickly with downtime generally covered by the deposit. By contrast, we require strong credit profiles for our HQ space, given the longer leases, higher incentives, and more bespoke customer fit-outs. Though ultimately, owning in-demand real estate is the best mitigant of credit risk. I'd like to now turn to development. It's a more challenging environment for this, given higher build and funding costs. It won't work everywhere, but in very core locations like here at Broadgate, where future supply is close to zero, the economics remain compelling. We're achieving premium rents, yields on cost over 7%, and we're mitigating risk through pre-lets, fixed-price design and build contracts, and partnerships.
This is exactly the approach we're taking at 1 Appold Street, as you'll hear later from Kelly. Now to Retail Parks, a growing part of our business where the fundamentals remain very healthy. By now you'll be very familiar with our 3 A's: affordability, accessibility, and adaptability. These make parks the format of choice for the U.K.'s best-performing retailers. The grocers, essentials, and omnichannel operators. Expansion by these retailers has driven strong absorption, with vacancy down 340 basis points since 2021, unlike high streets and shopping centers where vacancy remains high. New supply is very unlikely, values remain below replacement cost, and planning is extremely restrictive. Our portfolio is unmatched in terms of quality and scale. We have 10 million sq ft of space within 30 minutes of half the U.K.'s population. Our deep, long-standing retailer relationships are a key competitive advantage.
This is translated into footfall that's grown more than 13% above the U.K. retail benchmark since 2019. Strong rental growth on our Retail Parks looks set to continue given the high correlation with occupancy. Our occupancy is 99% and we delivered 4.4% rental growth last year. The overrent that emerged post-COVID has largely burned off through ERV growth, and today we're leasing space around 6% above previous passing rent. Kelly will cover this and how we're also leveraging our retailer relationships to source attractive acquisitions and drive performance. Before that, I'll hand over to David to take you through the finances. David, over to you.
Thanks, Simon. Morning, everyone. Three things from me today. First, I'll cover our financial performance for FY26. I'll update on the balance sheet our approach to capital allocation, and finally, how our five earnings levers drive performance into the current year, FY27. Starting then with the financials. I'm pleased we delivered earnings growth ahead of the guidance I gave at the start of the year, underpinned by strong like-for-like growth, good progress on development leasing, especially through the second half, and continued cost discipline. Like-for-like net rents grew 6%, adding GBP 0.021 to EPS, and within this, campus growth was 12% as EPRA occupancy improved following leasing progress at buildings like Norton Folgate and 155 Bishopsgate. Retail also performed well, delivering 2% growth despite already high occupancy levels, and the fact we're now doing deals ahead of previous passing rents is a key driver of future like-for-like growth.
Development leasing added GBP 0.014 to EPS as recently completed schemes began to contribute to income. We saw the benefit of our focus on admin costs, which are down 9%. This, combined with a GBP 1 million increase in fee income, added GBP 0.008 to EPS. These positive items were partially offset by 2 factors, the negative year-on-year movement in one-off items and higher finance costs. Within the one-off items, there was a provision released last year, mainly related to the receipt of legacy arrears that did not repeat in FY 2026, and this movement more than offset the upside from surrender premium. Surrenders were higher than normal in the year, but in each case, they represent the kind of hands-on asset management Simon described, allowing us to secure cash receipts and re-let the space to new occupiers at higher rents. Higher finance costs reduced EPS by GBP 0.034.
Of this, GBP 0.01 was due to a 30 basis points increase in our weighted average interest rate to 3.9%, but the bulk of the increase is because interest that was previously capitalized on developments now hits the P&L as these schemes complete. This in itself reduced EPS by GBP 0.024. Although looking forward, the impact is now more than offset by the leasing we've delivered on these schemes. That's one of the key reasons why we see earnings growth into FY 2027 as being de-risked, something I'll touch on later. Overall then, underlying profit was up 5% with underlying EPS up 1%. In line with our dividend policy of paying out 80% of underlying EPS, The Board has proposed a final dividend of GBP 0.108, taking the total payout to GBP 0.2312, up 1%.
In terms of the more detailed P&L accounts, the two metrics I'd focus on here are the net rent margin and cost ratio, both of which have been impacted this year by specific factors. Firstly, the provision movements I just described, and secondly, increased void costs as developments completed. Going forward, the void cost impact will reduce as we benefit from the development leasing we've already delivered and fill the remaining space. At the same time, we of course remain focused on controlling costs. In this context, it's pleasing that admin costs are down 16% since 2022, despite inflationary pressures, and down 9% this year alone. This will benefit the cost ratio, which I expect to be around 17.5% in FY 2027, before reducing further to mid-teens in future years, whilst margins return to around 90% over time. Moving on to the balance sheet and NTA.
Portfolio values increased 2.3% over the year, which along with profit growth delivered a 4% increase in NTA per share to GBP 5.90. Combined with the dividend paid, this delivered an 8.1% total accounting return within our target range of 8%-10% for the first time since 2022. It's clear that our focus on making smart asset management decisions in the right sectors, driving rents higher while controlling costs, has underpinned this performance. We remained active in the debt markets in the year, completing over GBP 3 billion of financing activity. More recently, the backdrop has, of course, been more volatile, we've continued to access markets successfully, including a new loan secured on 100 Liverpool Street in April, and our new commercial paper programme, which is shorter-dated by nature but benefits the P&L.
Looking ahead, with our diverse mix of debt types and duration, we remain well financed with flexibility on when and how we raise new debt. Leverage remains within our target ranges for this stage of the cycle. LTV is 39.2%, net debt to EBITDA on a group basis is 7.7x, and our Fitch rating remains A with a stable outlook. With GBP 1.6 billion of liquidity and no requirement to refinance until 2029, the balance sheet continues to provide the stable platform we need to grow. In this context, our approach to capital allocation remains disciplined and consistent. In fact, this slide is unchanged from half year. Our focus is on recycling capital out of more mature, lower-returning assets into higher-returning opportunities. Today, that means continuing to invest in Retail Parks at attractive pricing and progressing best-in-class Campus developments, but on a suitably de-risked basis.
Kelly will talk you through the framework of how we think about de-risking development shortly. As ever, we take all capital allocation decisions in the context of shareholder returns. Including the relative returns and EPS accretion available from share buybacks, for example, when we have proceeds to invest following significant disposals. Our acquisition of Life Science REIT demonstrates how we are alert to opportunities to drive growth in an earnings-accretive, NTA-neutral manner. It allows us to scale into a sector with strong tailwinds using our existing platform and is immediately earnings accretive, adding GBP 0.003 to EPS in FY 2027, with further upside moving forward, primarily from the lease-up of the newly delivered space at Oxford Technology Park.
We've already repaid the legacy company debt using cheaper British Land facilities, integrated the 5 assets into our portfolio at minimal incremental cost, and we're making good progress on initial leasing with 56,000 sq ft of newly delivered space under offer at Oxford Technology Park. Turning now to our 5 earnings levers. This is the framework we use to deliver consistent cash-generative growth. I'm pleased at how in FY 2026, we've delivered well against these, including good like-for-like growth, continued cost rigor, and strong progress on development lease-up. Fee growth has been slightly below what we target medium term. That's largely because capital activity was also lower in FY 2026 than we would normally expect. Again, Kelly will expand how we see the outlook for investment markets in a minute. Principally though, these levers were about the building blocks of earnings growth for FY 2027 onwards.
Here I've set out how we expect them to trend over the medium term, which again is consistent with half year. The first three levers demonstrate how we expect to generate around 4% core organic EPS growth per year, with capital activity adding a potential further 2% EPS growth, meaning overall we expect to deliver sustainable earnings growth of between 3% and 6% per annum going forward. Specifically for FY 2027, there are a few things I would highlight. First, given the occupational strength of our core markets, we are confident in delivering like-for-like growth at the top end of our target range of 3%-5%. Second, we will benefit from the development leasing completed over the last 18 months, which will deliver around GBP 40 million of rents in FY 2027.
Third, we remain focused on leasing our remaining development space while retaining a firm grip on admin costs, which will both drive an improvement in our cost ratio to around 17.5% this year based on the expected shape of our P&L. Partially offsetting this, we do expect a continued further gradual increase in finance costs, likely at the top end of this range of 10-20 basis points given our hedging profile. Finally, within the capital recycling lever, as I described, the Life Science REIT acquisition is immediately earnings accretive. All of which underpins our confidence in delivering at least GBP 0.305 of EPS for FY27. That's 6% EPS growth off FY26 levels, which is a good place to hand over to Kelly.
Thanks, David, and morning, everyone. Simon's covered the market backdrop and our strategy, so what I want to do now is bring it to life. I'll talk you through the activity and value creation we're seeing on the ground and share some examples of where our hands-on approach to asset management really delivers. Starting with valuations, this is fundamentally an occupational story. Portfolio values were up 2.3%, driven by ERV growth of 4.9% and stable yields. ERV growth is at the top end of our 3%-5% guidance range, reflecting the strength of leasing we've delivered. You can see the same pattern across both Campuses and Retail. Campuses are up 2% with ERVs up 6.5%, and Retail and Urban Logistics are up 2.7%, with ERVs up 3.6%.
Geopolitical and macro volatility remains very evident, the operational performance has shown no signs of pausing, with leasing volumes accelerating in recent months. At our Campuses, we completed a record 1.7 million sq ft of leasing, 6% ahead of ERV and 20% ahead of previous passing rents. This reflects tight supply for well-located, high-quality space. Around half of this annual activity was delivered in the final quarter, despite the more volatile macro backdrop. This continues into FY 2027, with a further 295,000 sq ft under offer as at year-end, 17% ahead of ERV, and in the six weeks post-year-end, a further 228,000 sq ft has gone under offer. Over half our deals have been on previously vacant or newly delivered space. This strong leasing drove occupancy to 95% at year end from 92% in September. That includes Norton Folgate, now at 94% let and under offer.
Over at Regent's Place in October, we launched 1 Triton Square. This building is a perfect example of our hands-on approach. We proactively took the building back from Meta in late 2023, received a GBP 149 million surrender premium, brought in Royal London as a JV partner early 2024, and repositioned it as a world-class science and tech building. Leasing velocity has exceeded expectations, with the building 94% let, including all of the lab space, just 7 months after practical completion, and achieving rents 40% ahead of what Meta were paying. Occupiers include Gilead, announced earlier this year, and more recently Anthropic, one of the world's leading AI companies, who've signed for 158,000 sq ft. This is our 6th deal with Anthropic at Regent's Place and a great illustration of how our Campus model supports growing businesses as they scale.
Stepping back, Regent's Place as a whole has had a strong year as it continues to transform. The 1.4 million square foot Knowledge Quarter campus benefits from proximity to leading academic and research institutions. Leasing this year has been 12% ahead of ERV, and ERVs across the campus are now almost 7% higher year on year. This has been driven by a broadening of the occupier base with a science and technology focus. Science and tech occupiers now represent over half the campus rent, up from a third five years ago. Euston Tower is the next chapter. As we move forward with our search for a development partner, it's a great opportunity to build on the campus's position as London's fastest-growing destination for innovation and high-growth businesses.
British Land Company will be moving head office to the campus in just a couple of months, so we're excited to have a front-row seat to everything that follows. While AI and tech's an important source of incremental demand, professional and financial service activity remains incredibly robust. Our letting to lawyers HSFK at Broadgate's 1 Appold Street development, signed in February and completing in 2029, is a good example. Their 21-year lease for the office space sets new benchmark rents for Broadgate. The project meets all our development criteria: prime campus location, meaningful pre-let of between 60% and 100% of the office space, construction cost certainty, and flexibility to bring in an additional capital partner alongside GIC to manage risk and drive fee income.
Turning to the offices investment market, the occupational backdrop is well recognized as very strong, and that strength will feed through to investment appetite in time. At the start of the year, we were seeing encouraging signs with renewed appetite for larger lot sizes. Since then, the Middle East conflict and U.K. political situation has weighed on the rates environment, but it's a question of when the recovery continues, not if. The occupational fundamentals are too strong for investors to ignore. Post-year-end, we've exchanged or gone under offer on £176 million of asset sales and have a number of other live processes underway. We'll update you on these in due course. Turning now to our Retail Parks, which remain virtually full. Leasing volumes are strong, with 1.5 million sq ft completed at 9% above ERV.
Deals are now being agreed above previous passing rents, reflecting very limited new supply and strong occupier demand. It marks a key inflection point. For several years, rental growth absorbed historic overrent. We're now through that phase, rental growth is flowing through into like-for-like growth. Demand on Retail Parks also continues to broaden. Compared with a decade ago, more occupier types have moved from marginal to mainstream, including gyms and leisure, drive-throughs, discount grocers like Aldi and Lidl, EV charging, and health service uses. This matters because it supports higher footfall, longer dwell times, and greater cross-spend, which will support the next wave of sustainable rental growth. To finish, I'll touch on some examples of recent active management in Retail Parks. This is one of the things we do better than anyone else. In November 2024, we acquired Orbital Retail Park.
At underwriting, the plan was upsize M&S Food into the former Homebase unit and re-let the smaller vacated M&S space to another leading national operator. We agreed both deals in principle before we purchased, acquiring with Homebase in situ, recognizing the pressure they were under, and with direct visibility from our discussions with M&S that they wanted a larger store. M&S opened pre-Christmas, just over a year after acquisition, and they tell us this is their fastest new store from signing to opening and has been trading extremely strongly. The asset has delivered us a 21% IRR since acquisition. Telford's another good example of hands-on asset management. We bought Telford Forge Shopping Park in October 2024. British Land Company, followed by the neighboring park last month, acquired at an attractive price reflecting some vacancy.
To create value across both parks, we've agreed a deal to bring a major national retailer to Telford Forge. To make room, we'll relocate some existing tenants into the vacant units next door. We've also added everyday services and EV charging to drive footfall and dwell time. We expect combined returns of around 11%. This is exactly the kind of opportunity our expertise allows us to find and execute. Less competitive, more attractively priced, and difficult for others to replicate. We have more in the pipeline. It's also important that we recycle capital when we've delivered our business plan and we see more attractive returns elsewhere. That was the case at Harlech, where on completion of a regear and enhancing the scheme's income profile, we sold the park in March this year at 10% ahead of book.
To summarize, we've had a year of record leasing in Campuses, driven by strong occupational fundamentals. Retail Park rents are now growing above previous passing, a meaningful inflection point driven by broadening demand. We're adding value through active asset management and capital recycling. I'll now hand back to Simon.
Thanks, Kelly. Some great examples there of us sweating the assets. To wrap up the presentation, as you've just heard, we had a record year of leasing in FY 2026, which provides high visibility on earnings into FY 2027. While the external environment remains uncertain, we're confident in our ability to deliver attractive earnings growth and total returns across the cycle. We have the right real estate in the right sectors and locations where demand is strong and supply is constrained. We're actively driving value through hands-on asset management. That concludes the presentation. Thank you very much for listening. David and Kelly will now join me on stage, and we're happy to take any questions. We'll take questions in the room first, I think. I think we've got a microphone available. Any questions in the room? 1 at the front, Tom. Thanks.
Good morning, it's Tom Mayson at Berenberg. 1 question about how you underwrite the risk on tenants who are not profitable. I know you touched on it in a slide in the presentation. Do you have limits on, say, the total exposure you're comfortable having to firms who are loss-making? I guess it's not just SMEs in store space with arguably higher credit risk? Even Anthropic, just as an example, is for now still heavily reliant on external funding.
Sure, no, it's a great question. As you covered in your question, for the smaller ones it's really about how quickly they can move in and out of the space. We've seen very few failures, remarkably low actually, in this space, obviously there's a chance they come. If you can move tenants in and out quickly, that's great.
To your point, on our HQ space, it's strong credit profiles. Yes, Anthropic is loss-making today, but I think it has a valuation of about GBP 1 trillion is what they're estimating for it. Look, that feels like a covenant we're comfortable with. We do think about that. We have tests. That was a decision. It would have failed our tests on income, but given how well the business is performing and growing, we felt that was a bet worth taking.
Okay. Maybe just a second one on the new commercial paper program. At what margin are you drawing that debt? Do you need to hold requisite capacity in your RCF in order to draw on the funding? What's the total capacity of that program?
Hi, Tom. Thank you. Yes, it's back-to-back. With RCFs. We're at around subsequent to year-end, GBP 350 million today. I think, you know, we'd expect to go up to around GBP 400 million at this point in time. It's something that we like because, as you said, there's a kind of 50 basis points plus margin differential there versus, say, our RCF. There's a P&L benefit that you trade off versus the shorter duration. As we look to diversify the debt book, it made a lot of sense to us.
Thank you.
Morning. It's Zachary Gauge from UBS. A couple of questions. First one, just quite specifically on the development pipeline, a couple of assets, their yield on cost and ERV seem to have moved quite a bit over the year. One Triton Square ERV went from 17.3% to 15.7%, yield on cost dropped 50 basis points. In Canada, Water Plot A1, obviously small ERV, but 3.6% to 3%, and a 200 basis point drop in the yield on cost. If you could just touch on the moving parts behind both of those. The second one was just on margins. Obviously at the start of last year, I think you guided 89%-90% on the gross to net, ended up at 86.4% this year and 87%-88% guide for next year.
I know we talked about this in the past and you've mentioned development obviously leasing up of void space and the bad debt provisions being two main drivers. I think obviously both of those you'd have had visibility on them 12 months ago. I guess the question is what's incrementally changed on the cost side versus what you expected 12 months ago to today?
Great. No, thank you, Zak. I'll take the questions on the yields on cost. On One Triton, originally we thought we'd do more floors of fitted labs. With that, you have the fit-out, and that then means that you get the higher rents. Obviously, the fit-out only has a certain shelf life. We're now more traditional office space. We've got 1 floor of labs which are occupied, but that's the key reason there, that move from fitted labs to effectively primarily an office scheme. Probably, you know, as Kelly alluded to, it's been a very profitable scheme for us because we took the GBP 140 million surrender, GBP 149 million surrender premium. We brought in a JV partner. We only had 15% of our original economics in it.
We've delivered a yield on cost of 6.3 on a building that's leased very, very well. At Canada Water, I think you are referring to our Dockshed scheme. Yeah. The scheme there. The reason the yield on cost moved on that was 2 reasons. Rents came down a bit, so the valuers moved the rents down to where we were marketing space. We've always thought it was about £50 for a day one letting. We'd be leasing the space at £50. The valuers had a bit higher for a while, about £60. The other factor is, unfortunately, this Building Safety Regulator— we had a residential and an office scheme combined, and the office scheme was ready to PC, but you can't PC until you've PC'd the residential scheme. We've now got that through the gateway.
As you know, that's been very, very slow for everyone across London. It's through, but it meant it got delivered basically one year later, which impacted the yield on cost, unfortunately. It's one of the challenges. We probably won't do one demise with residential and offices going forward. It makes it too tricky.
Then on margin. Thanks, Zachary. Good question. You're right. The guidance last year was 89-90. We did update that at half year. I think we've come in that was 87-88. We've come in 60 basis points light of that. You're absolutely right. You're also right about the drivers. Provisions this year that we had some legacy cash receipts in the prior year which drove provision releases. We're back to a more normalized provision position this year, but the year-on-year move is impactful. As you again rightly say, it's void costs.
In terms of guidance, what's harder for me to have visibility on is the timing of the lease-up of the developments, which clearly impacts on the amount of void costs you carry in any particular year, as well as when the rental income starts to come through. It's a double-sided coin. What I would say is, as we've all hopefully reiterated, one of the big, most pleasing things about the year just ended is the progress we've made on development lease-up. A lot of that was through the second half. What we now see is the benefit of that moving into next year. The void cost impact is therefore mitigated. We get the rental income coming through. That's why I'd guide over the medium term for that margin to go back up towards 90%.
Thanks.
Hi, good morning. Valerie Jacob from Bernstein. I've got a question on your asset values in the West End. They were flat this year despite quite strong ERV growth. I just wanted to see if you had some color on that. Maybe a follow-up on that. You know, ERVs have been growing quite strongly, and I just wanted to have your opinion on the risk of yields moving out if, you know, ERV growth slows down.
Okay. Okay. Maybe I'll take the second part of that question first, Valerie. I think we're not seeing a slowdown in ERV growth at the moment. If anything, it's accelerating. There was a slide I put in the deck where Occupational markets are really, really tight at the moment. I think we're going to see less supply come forward because of some of the volatility. We think rental growth accelerates from here and we trapped inflation over the last, was it last sort of 4 years? We think we'll outperform inflation because of that tighter market. Not, not looking at that, I think you've probably got a situation where rental growth is going to be stronger. There'll be some pressure on yields because of higher rates, and those two will kind of be counteracting one another.
Kelly, do you want to take the question on West End values?
Yeah, happy to take that. Oh, the standing investment portfolio in the West End was up, reflecting what we covered in the prepared notes, the strong ERV growth, leasing ahead of ERV, but there was a relative drag from developments, and that's at Euston Tower. It's to do with updating some cost assumptions around the development. What we would say here is that we haven't moved the rents on to reflect the progress that we've been having at Regent's Place. There is also at Paddington, there's one move-out assumption on one of the standing investment assets there, but it's space that we're very comfortable getting back and we're working through our plans with our JV partner.
Any more questions in the room?
Marc Mozzi from Bank of America. If you were to spread and to break down your rental growth between retail on one side and urban logistics on the other side, what would be the numbers? Because it's 2% and it seems to be low from a retail perspective. I guess it's dragged by the urban logistics assets.
Yeah.
Thanks, Marc. I think that's in the table in the deck. Kelly, you've probably got the figures to hand there.
Yeah, good question. London Urban Logistics against the backdrop of a slightly softer short-term market there that we flagged before, that ERVs were down 4.3%, also reflecting some leasing that we had done in the half, and Retail Parks ERV growth of 4.4%.
To your point, that's why it's slightly softer. Obviously, the Retail Parks are 11 times the size of the urban logistics. Thank you. Do you have the same breakdown for like-for-like number?
The 2% like-for-like?
Oh, sorry, like-for-like rather than ERV. Sorry, Marc, you did say that. Apologies. I don't, what would the like-for-like have been in the Urban Logistics? We leased up space in the period. I don't think it was a drag. I don't think Urban Logistics was a drag. It was more the Retail Park, like for like, was 2% in line with the aggregate. Urban Logistics was basically flat in that period.
Fine, thank you. For you, David, have you seen credit spread moving out recently in the past couple of months? If any moves, what would that be?
Yeah, spreads feel relatively stable actually, Marc. All-in pricing has moved out, obviously. As I said in my remarks, the market feels more volatile today. When it comes to executing transactions, that feels a bit more challenging. Yes, all-in pricing will have moved out, but spreads feel stable. We continue to benefit from the fact, you know, 94% hedged on a spot basis. That gradually declines to 70% over five years. Whilst we will see that increase in finance costs over time to prevailing market rates, when you annualize that out, it is, you know, that 20 basis point level we expect.
Any more questions in the room? No, I don't think so. Maybe if we go to the calls.
Yeah, it's just the webcast today. Yeah, we have a few questions on the webcast. We've got two questions here from Eleanor Frew at Barclays. The first question is, given the limited lease events to capture reversion, can you clarify how much of your 3-5% like-for-like growth guidance is driven by letting up of past developments as well as factors such as surrender premiums? The second part of the question is, the U.K. government is considering price caps for retailers who already have thin margins. Do you have any thoughts on the potential impact on tenant health and rental growth?
First one. Yeah, the like-for-like growth is standing portfolio growth, Eleanor. Yeah, standing portfolio growth is what we expect to be 3%-5%. As I said, next year at the top end of that range.
We're capturing good rental growth at rent reviews and regearing leases and renewals. That's how it's coming through. Obviously, there's a pretty big reversion now in the office business and increasingly growing one in retail. On the outlook for retail, we've given, you know, I think fairly clear view that demand is very good on our Retail Parks. There's lots of retailers wanting to move, and they're moving from high street secondary shopping centers onto the Retail Parks. One of the things that drives that is the efficiency of the Retail Park space. You've got an occupancy cost ratio of 9%. When margins are under pressure, I think that just accelerates that shift from high street to Retail Parks. You know, grocers have been trading well, and other occupiers on the Retail Parks have traded well.
We'll have to see what this means. To this point, the demand is very healthy. I would only expect it to accelerate that shift.
We have another question from Jonathan Kownator here at Goldman Sachs. He asks, how is the search for partners progressing at Regent's Place given the leasing pace at the campus? Would you commit in today's environment?
Thanks, Jonathan. Kelly, do you want to take that one?
Yep, sure. Happy to. All the progress that we've had at Regent's Place over the half, It's a campus that's going under a really strong transformation. We're moving rents on, we're moving ERVs on. It's an optimal time to be out there looking for a development partner. We don't have anything to report as yet, but it's a really attractive proposition and we see a lot of future growth coming out of that campus, so we feel good about it.
I would almost certainly do it on a sort of de-risk basis, as you've seen with our other schemes where we put in a pre-let, get a fixed-price contract. That's normally the point in time where a partner wants to come in when it's been de-risked like that.
I have a question here from Adam Shapton at Green Street on Retail Parks' 89% retention rate. Is there a pattern in the 11% that are departing in terms of retailer type or location? What types of re-leasing spreads did you achieve on those?
Do you want to say that one, Kelly? I'm not sure I know the answer to that one.
I can give it a go. No particular pattern. That retention rate, it's been fairly steady the last few years, and I mean, it's a good retention rate for all the reasons that we've covered in the prepared notes. Occupiers are not looking to give up space. They're acquisitive if anything. No discernible pattern there about the 11%. The re-leasing spread, that might be one that we need to come back to you on.
The only data point I can think that will give you directionally the answer to that, Adam, is when you look at renewals versus new lettings in the Retail Parks, the re-leasing spreads are much higher on the new lettings because one of the things in I guess, with leases inside the Act is providing the evidence. It's harder, obviously, to provide the evidence when you're doing a regear than when you've got competitive tension on a new deal. On those new deals, our re-leasing spreads are much higher. I think that probably gives you the direction of travel.
We have a question here from Nikita Meier, HSBC Asset Management. She asks, are there any updates on Canada Water?
Yeah, happy to provide update on Canada Water. Probably the biggest thing to update on is the Section 73. Probably aware that in London there's an acceleration package for housing where the affordable housing requirement was reduced from 35% down to 20%, SIL was halved. More grants available. We've taken advantage of that at Canada Water with our Section 73. That's moved the affordable housing down from 35% to 9%. It's also given us more massing on the scheme, which is very helpful, and more flexibility on the range of living uses. We had lots of flexibility, but we've got more now. That's good news. We will deliver the affordable homes. The idea is less affordable, but, you know, we will deliver those and then future plots will basically be unencumbered by affordable housing. That's good.
It means we can deliver our plan, which is a capital-light one where we continue with the placemaking. We probably sell off plots to the uses like build-to-rent, student, as well as co-living to the dedicated operators there, capital-light for us, and lots of momentum on Canada Water. On the office side of it has been quiet over the last sort of 2 years, but there's been a real noticeable pickup in viewings and negotiations at Canada Water, and I think that's a function of very good rental affordability, £50 rents down there, and also the placemaking really for feeling like it's taking shape now.
We have three questions here from Mike Prew. The first question is, why are valuers cautious on your Retail Parks with passing rents at GBP 21.70 versus a lower ERV at GBP 21.40? The second question is, in a London office supply crunch, should you not be buying secondary vacant offices to refurbish or reposition? And the third question is, how much of the office portfolio is occupied by Storey, and what is the Storey utilization rate?
Thanks for those questions, Mike. Happy to take the one on secondary offices, and then Kelly, if you take the other two. On secondary offices, I think there is an opportunity there. I think they need to be in the absolute right locations. Our Campuses clearly benefit from great transport links. I think if you've got great transport links and good bones and you can upgrade to high-quality space, that is a great opportunity. The returns have been particularly strong on our Broadgate Tower project where we're taking a building, it's a good building, but we're adding amenity and we're pushing the rents on. Part of the thinking there was there's just an absolute shortage of tower floors in the city. We're getting rents that are at a discount to 2FA, but not much of a discount, so that's been good economics.
I think the first one was on Retail Parks performance, Kelly, and the rents.
The rents, I mean, valuers can only use the evidence that they have, so there will generally always be a bit of a lag in terms of ERVs on the values, and nothing unusual there, but I hope we've shown today that we're able to lease ahead of ERV and also now crucially ahead of passing. On Storey, we can come back to you with the exact figure unless one of the gentlemen next to me has it sitting in their heads.
Just under 10% occupancy.
Just under 10%, it's near enough. It's been a really good period for Storey. Like-for-like income growth's been 16% and we're operating at 94% occupancy there. It's doing well.
Do we have any more questions?
We do, yeah. We have two further questions. One is from Marcus Fildes at Columbia Threadneedle. He asked on the Life Science REIT deal, what were the total costs of acquisition, both in pounds million and a percentage of asset value? Did you pay a full break fee on the management contract, and is that included in the total costs?
Thanks for those, Marcus. I'm sorry, off the top of my head, I don't have. I'm being shown at the back of the room, GBP 10 million was the total cost. Does that include the break fee, Jonty? It does include the break fee. Thank you. Well done. This is Jonty's last set of results for British Land Company, so we are going to miss that. Thank you.
One final question from Philip. Philip Matthews at Wise Funds. Should we expect a reasonable recycling of assets within the Life Science REIT portfolio? Are there other M&A opportunities open to British Land Company, or should we consider labs a bit of a one-off?
On the asset recycling, when we did the GBP 2.7 billion, we were clear that there was no immediate intention to recycle those assets. We like them. We can do some really active management on them. Drive performance. Once we've done that, of course, every asset in the portfolio is a potential disposal at the right pricing. I don't think you should see Labs as a one-off deal. I think, you know, we want this business to grow. The things we set ourselves for growth are strategically aligned. We really like this portfolio because it grew out our science and tech footprint, as you saw on my slide. It's about earnings depreciation and, you know, hopefully NTA neutral or not too much NTA dilution. There's more deals like that, we would do them.
You know, we are big believers in the science and tech space, particularly around the Campus concept.
That's all on the webcast,
and we don't have phone calls on this one. No. Great. Cool. Well, thank you very much for listening today. Hopefully that was useful. We really do appreciate you being here. Thank you.