Good morning, everyone. Thank you for joining us. It's great to be back at Broadgate for these set of results. You will have noticed quite a few changes on the campus over the last year since we were last here. If you do get a little bit of time after the presentation, do check out the retail underneath 1 Broadgate. It launched last week, and it's already 90% let and under offer, which is a pretty good place to be. In terms of today's agenda, I'll start with an overview. David will take you through the first half performance and also our earnings levers. Kelly will look at our strong leasing and accretive asset management over the period. Before I hand over to David, I'd like to take a step back and look at what's driving the future performance of the business.
At the heart of this is the decision we took nearly five years ago to build a market-leading position in campuses and retail parks. Together, these now represent 90% of our business. These are sectors with strong occupational fundamentals, demand's healthy, supply is constrained, and rents are very affordable. The investment market is waking up to this. Investors are increasing their allocations to both retail and offices. We are very well placed to capitalise on this. That is down to the quality of the assets, the experience of our team, and our value-add mindset. The result? A very attractive total return profile, underpinned by sustainable earnings growth. Let us unpack this, starting with Prime London offices, where a classic supply crunch is driving strong rental growth. The return to the office has exceeded expectations. Midweek utilisation across our campuses is now above pre-pandemic levels. Businesses are short on space.
Last year, they expanded by 3.3 million sq ft, the highest since 2019. Active demand is now 50% above the long-term average. Supply remains tight. Initial concerns about working from home have been compounded by rising construction costs and higher interest rates. You can see on this slide, vacancy for new and refurbished space in the city is predicted to fall below 2% and stay there for the next four years. Historically, when this has happened, it has driven double-digit rental growth. We've positioned our portfolio to benefit from this supply squeeze. Office occupiers are focused on four key areas: quality, location, amenity, and flexibility. Our campuses tick all the boxes. We currently account for seven out of the top 20 leasing deals that are under offer in London. We are capturing a disproportionate share of a very strong market.
That's down to high-quality sustainable buildings, prime locations near transport hubs, excellent amenities in public realm, and flexible offerings ranging from story to fully fitted work-ready space to headquarter space. This flexibility is key for customers in the innovation sectors. This is a fast-growing market, especially in the Knowledge Quarter. The number of innovation customers in our portfolio has more than doubled since 2022. There's been strong growth from a new generation of AI and tech businesses, with high levels of venture capital investment. This is a key source of new demand. We're tracking 1.5 million sq ft of new requirements. Kelly will explain in a moment how we're benefiting from this at Regent's Place. Our on-site developments are achieving record rents, which is driving development yields above 7% and mid-teens IRRs. These record rents also provide valuable evidence for upcoming reviews across our campuses.
We're de-risking our schemes with pre-lets and fixed-price contracts, and increasingly bringing in partners such as Modon to reduce capital outlay, accelerate delivery, and earn valuable fees. Let's move on now to retail parks. These continue to be the preferred format for retailers. They're efficient and adaptable, offer easy access, free parking, and they're ideal for a range of retailers, including value, grocery, and multi-channel. Retailers like M&S, Lidl, Aldi, and Home Bargains are expanding into this format. Yet there's been virtually no new supply in the past decade, and we don't see this situation changing. Development economics are unattractive, and planning is restrictive. As you know, we're the largest owner and operator of multi-let retail parks in the U.K., with a portfolio stretching from the Isle of Wight to Inverness. Half the U.K. population lives within a 30-minute drive of one of our assets.
We have deep reach with the retailers, given our scale, the experience of our team, and our in-house property management. Of course, we use demographic and competition data, but nothing beats picking up the phone to a retailer to understand trading. Our focus on strong trading locations is reflected in our footfall. This has grown 13.5% above the U.K. retail benchmark over the last five years. Despite a more competitive investment market, we're still acquiring assets at yields above 7%. We're comfortable taking occupational risk due to the market strength, our asset management expertise, and those retailer relationships. In real estate, affordability is just as important as supply and demand. For prime offices and retail parks, the picture is very positive. London office rents, relative to wages, are lower than at the turn of the century. Retail occupancy cost ratios are very healthy.
This leaves plenty of room for rental growth. That's why we're guiding to 3%-5% growth in both sectors. Investors are taking note of the occupational strength I've just described, and they're increasing their allocation to both offices and retail. This, together with strong credit markets, means we expect investment volumes to grow. London office transactions have been subdued in recent years, as we know, but they've really picked up this year, with over GBP 6 billion year-to-date and GBP 3 billion under offer. So far, the number of deals over GBP 100 million this year is already double the whole of last year. Strong occupational fundamentals, improving investment markets, and our high-quality platform provide for an attractive total return profile. The essential building blocks are set out here: their earnings yield, valuation uplift, and development upside. Earnings yield is currently 5% and growing.
Assuming stable property yields, valuations will primarily be driven by ERV growth, where we're guiding to 3%-5%. You need to adjust for a bit of depreciation, the impact of leverage, and the fact that ERV growth doesn't feed through one-to-one. You can see how these first two building blocks get you to around 8%-9%. Developments add further upside, with mid-teens returns forecast on the committed schemes and the pipeline. We are confident in delivering total accounting returns of 8%-10% through the cycle. The total return outlook is underpinned by attractive earnings growth. We are expecting at least 6% next year, and we have the levers to deliver 3%-6% over the medium term. This is an ideal point to hand over to David, who will take you through these levers as well as our numbers. David, over to you.
Thanks, Simon. Good morning, everybody. Three things from me today. First, I'll cover our financial performance for the half-year. Second, the balance sheet and our approach to capital allocation. Finally, I'll provide an update, as Simon said, on the five levers of earnings growth I outlined in May, and then how we see them translating into medium-term growth of 3%-6%, including our guidance for FY2026 and then into FY2027. As you know, we released many of the key metrics in October. That is something you should expect from us going forward. One benefit we see is that it allows us to spend more time today on strategy and outlook. Starting with the numbers, underlying profit was up 8% to GBP 155 million.
An underlying EPS was GBP 15.40, 1% ahead of last year, meaning the dividend is also up 1%, in line with our policy of paying out 80% of underlying EPS. Looking at the EPS bridge, you can clearly see the benefit of our progress against the earnings levers. In particular, driving like-for-like, which was 4% and contributed GBP 6 million, or 0.6p , with a positive performance across both offices and retail. Higher rents from developments, from completed schemes like 1 Broadgate and The Optic, partially offset by void costs and lowering admin costs. This has been a key focus for me since I became CFO this time last year. I spoke in May about the savings we had already identified, and I am pleased to see the benefit come through in H1, with admin costs down GBP 5 million, or 12% versus last year, adding 0.5 pence to EPS.
One-off items had only a limited impact on earnings year-on-year, as the positive effect of surrender premia offset bad debt provision releases last year. Taken together, then, these positives more than offset the GBP 13 million increase in finance costs, which reduced EPS by 1.3p. This is in line with expectations, mainly reflecting the fact that we're no longer capitalizing interest on completed developments and a 10 basis point increase in our weighted average interest rate to 3.7%. Here's the summary P&L account. I've covered most things here already, but just to touch on two further metrics. First, our NRI margin. This was lower due to the increase in OpEx, mainly because of the movement in provisions I just touched on, which slightly flattered the margin last year, and void costs as we lease up developments. Once this is done, I expect our margin to stabilize at around 90%.
The other thing to draw out here is the EPRA cost ratio, which was 17.4% at September, as this higher PropEx more than offset the reduction in admin costs. Though I do expect the ratio to come down to the mid-teens in future years as we lease up developments and further leverage the operating platform we have in place, adding income while controlling costs. Now turning to the balance sheet, NTA has again increased since March, reflecting a 1.2% rise in property values, which added 10 pence, and underlying profit, which added a further 15 pence, although this was partially offset by the dividend paid in July and other movements, resulting in NTA per share of GBP 579, up 2%. This, combined with the dividend paid, equated to a total accounting return of 4% for the half, meaning we're on track to deliver our full-year target of 8%-10%.
Credit remarkets remain very strong, and we've capitalized through a broad range of activity focused on maintaining our overall maturity and enhancing diversity in our sources of finance. We raised a GBP 450 million green loan secured against 1 Broadgate, extended GBP 930 million of RCFs, and renewed GBP 500 million of term loans at improved pricing. Looking ahead, we have just over GBP 300 million of debt maturities at British Land over the next 12 months. We remain well-financed with flexibility on when and how we raise new debt. With good access to the bank debt and capital markets, we expect to remain active in a strong market. I was pleased to have our Fitch rating reaffirmed in July at A with a stable outlook, reflecting the fact that our balance sheet remains strong. We ended September with GBP 1.7 billion of undrawn facilities in cash. Net debt was GBP 3.8 billion.
Our LTV was 39.1%, with net debt to EBITDA on a group basis at 7.2 times. This balance sheet stability underpins all of our capital allocation decisions. We focus on recycling capital from mature, lower-returning assets into higher-returning opportunities. Currently, that means investing further into retail parks where, as Simon has described, the investment case remains compelling, and we continue to see opportunities to buy at attractive pricing. Alongside that, we progress best-in-class office developments at our campuses on a de-risked, capital-light basis, securing pre-lets, certainty over build costs, and bringing in partners to accelerate returns and reduce risk, just as we did over at 2 Finsbury Avenue. Our London Urban Logistics portfolio has embedded development optionality, and we remain positive about the long-term supply-demand dynamics here, so we can progress those schemes when the time is right.
The sector is weaker today, so we prioritize better uses of capital in retail parks and campus development. It is important to note that we always make capital allocation decisions in the context of shareholder distributions, including the relative returns and EPS accretion available from share buybacks, for example, when we have to proceed to invest following significant disposals. As ever, all of our capital allocation decisions are based on our assessment of relative returns at any point in time. In May, I set out the five levers we focus on to drive consistent cash-generative earnings growth. Six months on, let's update against each. First, like-for-like rental growth. We have made a strong start to the year. Portfolio like-for-like growth was 4%, right in the middle of our guidance of 3%-5%.
Campuses were up 7% as we drove occupancy and secured rental uplifts on space which had been surrendered. Our retail business also continued to grow, albeit at a lower rate, reflecting the fact that we're at near full occupancy. Going forward, though, ERV growth should more directly translate into like-for-like growth, as we're largely rack-rented now on our parks. Overall, for the full year, I expect 5% like-for-like growth across the portfolio. Kelly will give you more detail on our portfolio performance in a minute. Fee income is our second earnings growth lever. We continue to work with a broad range of JV partners, generating fee income for both asset and development management.
Although fee income was flat in the first half at GBP 13 million, we do expect to achieve 10% growth for the full year as we continue to earn fees on development mandates and we are actively pursuing opportunities to leverage our platform in order to drive incremental fees from new and existing partners. Third, cost control. I am pleased with the progress we have made over the last 12 months, this remains a focus. For the full year, I expect admin costs to be GBP 75-GBP 76 million ahead of the guidance I gave in May and versus GBP 82 million for last year. Development leasing is our fourth earnings lever. As I mentioned earlier, we are now benefiting from schemes such as 1 Broadgate and The Optic, while leasing on previously delivered schemes at Norton Folgate and Aldgate Place is well on track.
1 Triton Square launched in October, and we're delighted to have our first deals under offer there. Finally, capital recycling. The fuel in this machine is our ability to dispose of lower-returning assets, freeing up capital to rapidly redeploy into higher-returning opportunities. As Simon laid out, the office investment market has been quieter than in previous years, but we are seeing signs of improvement. Against that backdrop, we've remained active, executing deals where it makes sense, disposing of retail parks where pricing has moved in, or development sites in London which were not income-producing, then rapidly redeploying the proceeds. Given the improving investment market, we do, however, expect activity to increase over the next 12-18 months. Bringing this together, we expect to deliver sustainable EPS growth of between 3-6% over the medium term. This slide shows how each of these earnings levers contribute to that.
Now, this is purposefully illustrative, and of course, it will not be linear in any particular year. To me, this is the best way to think about the earnings growth potential of our business. Let's go through each of them. In terms of like-for-like, we're confident we can consistently deliver 3%-5% on our standing portfolio, given the strong occupational fundamentals of our core sectors. At the midpoint, this top line of 4% growth drops through to 5% annual EPS growth. 10% fee income growth adds another 1% per year. On costs, I do expect further reductions over the next 12-18 months, which will, of course, continue to benefit earnings. Although over the medium term, there is likely to be continued inflationary pressures. Modelling broadly flat costs is not unreasonable over, say, five years.
Likewise, our weighted average interest rate will gradually increase over time, reflecting prevailing market rates. Based on today's rates, we anticipate a 10-20 basis point increase per year, which would reduce EPS by around 2% per annum. Overall, we see a clear route to core EPS growth of 4% per year, and that's before further capital activity, which really is the kicker on top of this core growth. There are two components to consider: development completions and asset recycling. While the timing and phasing of capital activity is, of course, hard to predict and it's by its nature lumpy, I've assumed around GBP 500 million per year, with GBP 200 million for developments and GBP 300 million for asset recycling.
To model the earnings impact for developments, we assume a spread of around 200 basis points between the yield on cost and our funding costs, and for asset recycling, 100 basis points between what we buy versus what we sell. Taken together, this capital activity would contribute a further 2% to EPS growth per year, increasing the annual growth rate to 6%, the top end of the range I described in May. Bringing this back to immediate outlook, moving into the second half, we expect to deliver at least GBP 0.285 of EPS for FY2026, and from there, at least 6% EPS growth for FY2027, as we benefit from the continued lease-up of our developments, capitalize on the compelling fundamentals of our core business, and move forward with confidence in delivering against our five earnings growth levers. With that, over to Kelly.
Good morning, everyone. You've heard from Simon on the strength of our markets. I will now take you through how that's translated into performance and outline how we're adding value across the portfolio. I will start with valuations, which have increased by 1.2%. This is the third period I have been able to report positive valuation growth, and it's a good sign that the inflection point is behind us. Valuations have been driven by strong rental growth of 2.4%. On an annualized basis, this is again at the top end of our guided range of 3%-5%, and we're confident this rental growth will continue. Turning to the operational performance, starting with campuses, we've leased 486,000 sq ft at 3% ahead of the ERV. At the end of the period, we were under offer on 629,000 sq ft, 6% ahead of the ERVs.
We have been particularly busy since 30 September, with a further 308,000 sq ft put under offer. That is a very busy six weeks. It is worth pointing out we are seeing particularly strong momentum in leasing up vacancy. Since March, we have let or put under offer 751,000 sq ft on vacant or newly delivered space. Our EPRA occupancy now stands at 88%, up 5% this half, up 10% for the year. As we said in the trading update, Broadgate is practically full. There is just one completed floor to lease across the entire campus, and it is an exceptional floor, the top floor of our newest scheme at 1 Broadgate. We are in negotiations on that floor, and we will set record new rents for the campus. This is good news for our on-site developments, which will deliver into a market with very limited supply.
Broadgate Tower is the first to be delivered late next year. This is a 390,000 sq ft building with 240 sq ft development floors. Since 30 September, we've gone under offer on 59,000 sq ft across five deals, taking the building to 49% let. This is a very strong position to be in at this stage. The next to deliver is 2 Finsbury Avenue in 2027, where Citadel are taking up to 50% of the space. Here, we are in negotiations with a number of larger occupiers two years ahead of delivery. This is a fantastic tower building, delivering in a year with very little competition. We've also been proactively identifying where we can take back space and relit it at high rents to drive value when there's such little supply. For example, at Exchange House, we proactively took back some floors.
We're reinvesting the surrender receipt into much-needed on-floor upgrades after 35 years of occupation and have already relet to MSCI, driving rents on by GBP 35 per sq ft. This added GBP 10 million to the valuation of the building and sets strong rental evidence for the wider campus. This is creative asset management, and we will look to do more of this. Norton Folgate is a slightly different proposition for us at British Land, as the product is smaller floor plates, often fitted, and therefore more suited to let post-PC. We've made good progress and are now 89% let, under offer, or in negotiations. We're on track to be fully let by the end of the financial year. Simon covered the growing demand coming from innovation occupiers, which is driving momentum across the portfolio. To capitalize on that, we launched 1 Triton Square last month.
This is an incredible building. It's a campus within a campus and offers real flexibility to tenants. It includes a floor of story space, a floor of fitted labs, three lab-enabled floors which look like a traditional office floor but can easily be converted to lab use as demand evolves, and three traditional office floors. You may have picked this up in David's piece, but I'm pleased to confirm that just six weeks after PCing, we have put 56,000 sq ft under offer to two globally recognized science and tech occupiers due to complete later this month. We have another 211,000 sq ft in negotiations. We are very excited about this and look forward to continuing to update you on our progress. Turning to retail parks, you'll know it's a very competitive occupational landscape and retailers are keen to secure space.
Leasing volumes remain strong at 681,000 sq ft, 6% ahead of ERVs, and under offers are 554,000 sq ft, also 6% ahead of ERVs. Deals this half have been in line with previous passing rent. Thanks to recent strong rental growth, our portfolio is now largely re-rented. As a reminder, it was over 20% over-rented just two and a half years ago. We are in a great position to generate strong like-for-like rental growth from the portfolio. Retail parks provide strong cash yields and good opportunities to increase value through asset management. I'll cover just a few of the many examples of asset management on our acquisitions where we've looked to improve the tenant mix and drive footfall, sales, and ultimately rents. I'll start with the first one we bought when we took the contrarian call to start buying retail parks.
When we bought Biggleswade Retail Park in 2021, it had six high-risk retailers. These are the ones in red. We have relet all of these to strong category leaders, which has helped drive a 12% IRR since acquisition. Rolling forward to one of last year's buys, Queensdrive Retail Park. When we purchased it, there were two vacant units. Both are now let, including to an M&S anchor, which is a major win for the park. The park is full and leasing well ahead of ERV and has delivered a 14% IRR since acquisition. Our most recent buy is Turbary Retail Park in Bournemouth, which we purchased earlier this month for a prospective double-digit IRR and a day-one yield of 7.4%, which with asset management we have already increased to 7.7%. We have a strong pipeline of similar deals.
As Simon covered, we're unlikely to see many new retail parks built, but we're actively looking for opportunities across the portfolio where we can add space efficiently. Projects like these ones at Glasgow and Rugby are smaller in scale, shorter in duration, and lower risk than traditional developments, but they generate meaningful returns with a yield on cost of at least 8%, often double digits. On top of that, they provide strong washover to the rest of the park by improving lineup and rental tone. I'll leave you with three things. Values continue to rise, driven by strong ERV growth at the top end of our guidance. Our standing campus assets are virtually full following a strong six months of lettings, and we've made good progress on our newly delivered space.
Finally, as the market leader in retail parks, our active asset management is pushing on rents and values, and we'll look to buy more in the space as we continue to recycle capital. Now over to Simon to wrap up.
Thanks, Kelly. To wrap up, let's circle back to where we began. We're a market leader in the right sectors, campuses and retail parks, where demand is healthy, supply is constrained, and rents are affordable. Investors are increasing their allocations to these sectors, and we're very well positioned to capitalise on this and to deliver attractive total returns going forward. Thanks for listening. We're now going to take your questions.
Thank you to the management team for the presentation. We have had a number of questions pre-submitted and submitted live.
Just as a reminder, if you would like to ask a question, please type them into the Q&A box situated on the right-hand side of your screen. Our first question is, you expect at least 6% EPS growth from FY2027. What are the key growth levers that will drive that?
Yeah, thank you for that question. I think I'll just remind you again what our EPS guidance is for this year and next year. We're guiding to at least GBP 0.285 of EPS for financial year 2026. Going into next year, we're guiding to at least 6% EPS growth. David mentioned it in the prepared remarks in terms of what the building blocks of that growth look like.
Just to remind you in terms of next year how that will look, given the strength in our markets that Simon discussed in the presentation, with very little supply, very strong demand, and rents remaining affordable, we expect to continue to see strong rental growth in those markets, and that should drive through to strong like-for-like growth. We expect 3%-5% like-for-like growth to come through next year, which will kind of deliver us around 5% of EPS. Moving down, we would then see fee income. We'd like to grow fee income by about 10%. That would be through existing development mandates that we have with our existing joint venture partners and potentially new mandates as well. That will add around 1% to EPS. Moving on to cost control, it's something we focused on over the last couple of years.
Very pleased to have reduced costs in the first half of the year by GBP 5 million. We will continue to look to save costs going forward and expect to save some costs going into the financial year next year. Offsetting that, you have the impact of finance costs. We are expecting to see around a 10-20 basis points increase in our average cost of debt over next year, which will have around a 2% drag in terms of EPS. Bringing those together, that is around 4% of core EPS growth. On top of that, you have capital recycling, be that selling assets and putting it into new purchases.
Next year, more likely it's going to be from the developments that we currently have and are delivering and leasing up those developments into next year, such as 1 Triton Square. That gets you to the top end of that 3%-6% range.
Thank you, Sean. Our next question is, are there still retail park opportunities out there? You mentioned buy at attractive prices. How much availability is there?
Yeah, that's a very good question and one that we've been asked a lot actually by investors. We are still seeing good opportunity in retail parks. The environment's definitely become more competitive as investors have realized and kind of seen the strong rental growth we're seeing. There's no new supply. They can buy at an attractive yield and you're getting good rental growth on those parks.
Given the scale that we have in that market, we're able to identify opportunities where we're willing to take maybe a little bit more occupational risk than some other investors. For example, Kelly took you through some examples in the presentation today. We would, for example, buy some parks where we know there's some vacant units or there could be a lower covenant tenant on those parks. Given the scale of our parks that we own and the relationships we have with the retailers, we're able to call up retailers before we buy a park and say, how does this trade? Would you like to be on this park? It gives us an advantage so we know that we can buy a park and take some occupational risk and fill those void units, change the tenant mix to improve the returns on those parks.
Thank you. Our next question is, your loan-to-value is creeping up. Are you worried about debt risk, especially if property yields move?
Yeah, yeah. Thank you for that question. I mean, our LTV today, as a reminder, is 39.1%. We've said we'd like to operate within a 30-40% range. At this point in the cycle where it seems that values have dropped and are inflecting, we feel comfortable in that 35%-40% range for LTV. LTV isn't just the only metric we're looking at. We're focused on a range of metrics and also look quite closely at net debt to EBITDA. That was 7.2 times for the period, and we would like that to be below eight times. Both of our metrics are below where we'd like them to be, which is good and something we're focused on.
Obviously, those are metrics that Fitch are very focused on, and we're keen to maintain the rating we have from Fitch. Going forward in terms of looking at leverage, we expect to continue to focus on capital recycling and expect, particularly with values inflecting, those metrics to move down over time.
With funding costs rising, how do you prioritize capital? Is it more developments, repurchases, or reducing leverage?
That's a great question. In the presentation, David obviously touched on our capital priorities and capital allocation framework as the business. You're right, finance costs have obviously been a factor over the last couple of years, particularly when we're looking at new developments and committing to new developments.
In response to finance costs increasing and our cost of capital increasing, we increased the hurdle rates that we require to commit to a new development scheme. Those moved up to around 12%-14% IRRs in terms of committing to new developments. Going forward, we're still seeing very strong returns in our retail parks today. We're buying those at good yields. You're getting 3%-5% rental growth given the strong demand that we're seeing from retailers for parks in particular and given the lack of supply. That's giving you a double-digit IRR, which is ahead of our cost of capital. For developments, as was mentioned in the presentation, we progress those on a de-risk capital-light basis.
We are working with joint venture partners to partner with us on those development schemes, which mean we earn good fee income, which boosts the returns, and on a risk-adjusted basis, deliver strong returns for the business. Going forward, we obviously are looking at potentially deploying into retail parks and developments. Of course, as was mentioned, those opportunities are always compared against how a share buyback would compare in terms of returns. We are looking at total return and also EPS growth of a share buyback versus deploying capital into a retail park or a campus development.
Thank you, Sean. Can you expand on what areas you're cutting costs?
Yeah, very pleased that we've continued to focus on cost reduction in the business. GBP 5 million cost reduction in the first half.
Our business is typically two-thirds people costs and then a third of kind of other admin costs, which are typically costs you would expect as a listed company. Audit fees, listing fees, etc. Over the period, we've made good cost savings across both of those buckets. Going forward, you would expect to see cost savings align with those two-thirds, one-third bucket of savings. Very pleased with the activity and expect to continue to focus on cost reductions over the next 18 months.
Do you see the mix of tenants changing over time?
Yeah, that's an interesting question. I suppose I can look at it in both lenses from kind of looking at our campus operation and also our retail parks. I suppose starting with retail parks, since over the last few years, we've seen probably quite strong demand from the discounters and grocery tenants.
We have seen very strong demand from the likes of Aldi, Lidl, and other omnichannel retailers like Next and M&S. We definitely continue to see those types of occupiers expand on our retail parks. You are also now seeing lots of other leisure operators come onto parks. Now you are seeing gym operators come onto the retail parks. You are seeing food and beverage operators come onto parks as well, which is probably different to what you would have seen 10 years ago on a typical retail park. We would expect that to continue, and we would like to see a diverse range of tenants on our retail parks. Looking at our campuses, typically we are leasing to tenants that are looking for HQ space. Typically these are large law firms. We are seeing it in banking and finance.
We have a wide range of tenants on our campuses, including marketing firms, etc. What's been interesting actually over the last six months or so, we've seen a very strong demand from the tech and AI sector. At the moment, we're tracking 1.5 billion sq ft of demand from that sector. Interestingly, that's more often than not new demand, so expansionary space. I think going forward over the next 24 months or so, you should probably expect to see some more deals with those tech and AI companies on our campuses as that's where there is a large pool of demand today.
Thank you, Sean. Our next question is, post-COVID, how have you seen people's habits change and the way people are using your buildings? Could you explain how this is affecting investment decisions?
Yeah, great question.
I suppose, again, I'll look at it through both lenses. I'll start with our campuses this time. I suppose that the office today is quite different to where we were five years ago before COVID. Since the pandemic, the return to office has actually been very strong. We're now above pre-pandemic levels Tuesday to Thursday on our campuses. People have returned to the office probably stronger than was previously expected. How people use the office now is probably slightly different. People expect good end-of-trip facilities. They expect to see amenities on the campuses to go to lunch or go somewhere after work. They're expecting to see showers, bike facilities, etc., and more collaboration space.
Occupiers now are putting more of their floor plate into collaboration space for people to come and work together at the office, which is maybe different as it were five years ago. Actually, we're seeing occupiers now take more space. Per employee now, we're probably taking more space per employee now than they were five years ago given this more collaboration space. On our retail parks, in the pandemic, one thing that we did see was that customers liked to come to retail parks because they were open air. They felt more safe in terms of shopping because they could drive outside the front door, go into the shop. It was open air, then go into a shopping centre. We definitely saw an increase in demand for retail parks in that period of time.
I think the trend, people still like going to a retail park for the same reasons as I just explained. They're on main arterial routes. It's free parking. It's often safer than on a high street. We are seeing that trend continue.
Thank you. How do you decide whether a property is better refurbished, repurposed, or sold?
We're always looking at returns. Whenever we're considering what we should be doing with a property, basically every single year, we will be looking at every property within the portfolio. We'll be looking at the future returns on that property and deciding whether we should retain it or whether it should be sold if it's lower returning and we can recycle into something that's more higher returning. Whether it should be redeveloped or not, again, it's returns focused.
I suppose a key example recently has been the Broadgate Tower on our Broadgate campus. That is where we have decided to do a fuller scheme on that product. We essentially had two-thirds of the building handed back to us when Reed Smith left the building to move to our Norton Folgate asset. At that time, we essentially could have chosen different options, whether it was a lighter refurbishment or a more heavy refurbishment in terms of the CapEx being required and putting an extension on the front of the building to provide more amenity space to that building. We opted for the latter, so we went for a larger project. The reason being is because of the supply-demand dynamics we are seeing across the London office space. There are pretty much no tower floors left in the city.
That means really by doing the fuller scheme, we can command higher rents and better returns than doing the lower scheme.
Thank you, Sean. Our next question is, how important are London campuses to your future, and do you see the model working outside of London too?
Yeah, that's a great question. Obviously today, our campuses are within London, and we have our three core operational campuses today at Broadgate, Regent's Place, and Paddington. As discussed in the presentation, the supply-demand fundamentals in our campus business are very strong today. We're seeing strong rental growth, so it's an important part of the business, and we expect that to continue going forwards. Whether the campus would work outside of London, I think it definitely is the case. There are campuses outside of London today.
The one thing outside of London, that return to the office trend probably has not happened as quickly as it has in London. I do not think you are quite capturing the rental growth that we are seeing in London today. It is not to say that that will not happen in the regions. It will happen over time, but it will take just a little bit longer. Today, we are seeing better returns in London.
Thank you. Next, we have smaller independent retailers are struggling. How are you helping them stay in your retail parks and centres?
Thank you for that question. Of course, retailers have come under pressure recently with the budget last year and obviously looking forward to the budget tomorrow. There have been cost pressures on the retailers and particularly smaller retailers.
As you can see on our parks, I mean, the tenants on our parks typically are quite large retailers. Ultimately, the one thing with retail parks compared to maybe some other retail sectors is that one of the key parts of the investment thesis is they're affordable for retailers. Today, occupancy cost ratios is where we look at sales versus rents, rates, and service charge are very low compared to other areas of the U.K. retail landscape today. They have come down from 17% in 2016 to around 9% today, which means that many retailers can still operate profitably from our retail parks.
Thank you, Sean. Our next question is, how are you using digital technology to improve how people experience your buildings?
Yeah, thank you for that question.
I suppose it's definitely been a focus for us as we develop new buildings is how we can enhance those buildings with technology. We want to make sure that we're not overspeccing buildings if it's not what the customer requires. It's a case of working with our potential customers and occupiers to say, how do you want this building to work for you? I mean, one key example of what we're doing today is contactless entry and exit out of a building. Just using your mobile phone to get into the building and out of the building. It's simple things like that and uses of technology, which just makes everybody's everyday life just that little bit more easy.
Thank you. We are now moving on to our final question.
If you have any further questions, please email the team who will respond to any questions that were not covered this afternoon. How do you balance sustainability goals with the cost pressures tenants are facing, and how are you making buildings genuinely greener?
Yeah, thanks for that. Sustainability is obviously something that is very important to our business. We are not just looking to do sustainability initiatives because it is the right thing to do. There is also a commercial advantage to us and our occupiers as well. The best sustainable buildings generate the best rents and also generate the best values as well. It is the right thing commercially for us to do to make buildings sustainable, particularly in offices.
The things that we're doing, they're often kind of low-cost interventions that we need to do to make these buildings more sustainable, such as fitting in air source heat pump, LED lighting. These measures are not only making it cheaper for an occupier to operate that building, it's also important for us as we want to exit that building in the future. Those buildings are a lot more attractive in the investment market. Also, whilst we build those buildings as well, it's ensuring that the embodied carbon within the building as we build them are as low as that can be. It's reusing materials or using low-carbon materials such as steel or glass, etc. Those things are the right thing for us to do, but also generate the best rents and the best rental growth for us in the future.
We currently have no further questions, so I'll hand back over to Sean for any closing remarks.
Yeah, brilliant. Thank you for today, and thank you for all the questions. I suppose I'll just finish today as Simon finished the main presentation. The key messages from our style, we are operating in two core markets. 90% of our business today is within our campus business or retail parks. In those businesses, that's where we are seeing the strongest occupational fundamentals. Demand is still very high, be that return to the office or also from retailers looking to expand on the lower-cost retail park format. We are seeing very little supply in both of those markets, and rents are remaining affordable, which is putting us well placed to continue to see rents grow and see those returns accelerate.
We see ourselves as quite an active owner of campus assets and retail parks with development expertise being well placed to deliver strong returns from these assets. Bringing it all together in terms of the return profile for British Land, today, we have a good strong income return that is growing. It is 5% off our net asset base today. We see strong capital growth from future rental growth that we will see across the portfolio, 3%-5% per year. On top of that, we expect to generate capital returns from our development portfolio. That is it from me. Thank you.
Thank you to the team at British Land for joining us today, and that concludes the British Land Investor presentation. Please take a moment to complete a short survey following this event. A recording of this presentation will be made available on Engage Investor.
I hope you enjoyed today's webinar.