Happy to start. Good morning and welcome to Derwent London 2024 Full Year Results P resentation here at DL/28. As well as hearing from me, you will hear from Damian, Nigel, and Emily. I shall then wrap up before Q&A. Turning to slide two and our highlights from 2024, a key theme over the last two to three years has been one of the strong occupational markets for high-quality central London offices. In 2024, we had another successful year for lettings at GBP 18.9 million of new rents signed, with open market lettings more than 12% above ERV. Now, 2023 transactions were dominated by the initial pre-lets at 25 Baker Street, where the office is now fully pre-let. But in 2024, we saw strong activity across all our villages at different price points. At 4.3%, ERV growth was the strongest since 2016. This has now driven a further significant uplift in our reversion.
Our overall vacancy rate reduced by a further 90 basis points to 3.1%. Our business model is based on regeneration, investing GBP 150 million-GBP 200 million each year. Our on-site projects, both of which are progressing on time and on budget, increased value by over 15%. This again has supported an attractive total property return outperformance compared to our index. At Network, we have ongoing dialogue with a number of parties, with the completion of the building not expected until the end of the year. Having secured resolution to grant consent for a major scheme at 50 Baker Street, we bought out our JV partner. At GBP 370 per sq ft, this is an attractive valuation compared to pricing levels seen in the market and adds an additional GBP 100 million of CapEx to our near-term pipeline. We're a great believer in the location.
Now, this time last year, we believed yields would begin to stabilize. In the first half, we saw a rise of just 18 basis points. In H2, in line with our guidance, our equivalent yield was stable. When combined with our development profits, our underlying valuation growth was positive at 0.2%. However, this marks a notable turnaround with growth of 1.9% in H2. As a result, I'm pleased to say that we're reporting a positive total return of 3.2%. Now, to outlook, more and more companies across the wide spectrum want to be in town. With a prime vacancy rate of just 2% and a constrained development pipeline over the medium term, London faces a supply shortfall for high-quality space and well-connected locations. Active demands remain strong.
We therefore expect the pace of ERV growth to be sustained at between 3% and 6% for our portfolio in 2025, with better buildings again likely to outperform. Together with development profits and assuming yields remain stable, our total return outlook is as strong as it has been for several years. Turning over now to slide three. Now, London is in demand. A thriving London supports a thriving occupier market. London's economic growth continues to outperform the wider U.K. market at around 25% of GDP. It is the powerhouse of the U.K. This supports forecasts for further employment growth across a diverse mix of sectors. However, despite robust demand, the supply response has so far been muted, particularly in the West End, where planning is more restricted. This is pushing rental growth across the market.
By contrast, the investment market remains quiet in 2024, as volatility in interest rates and a geopolitical backdrop cause investors to remain largely on the sidelines. Investment activity was dominated by small lot sizes. To date, there has been limited distress and consequently limited value in the market. However, there are signs that the investment market is gaining momentum, with several new investor groups emerging and some larger deals completing since the start of the year. Having remained disciplined, we would certainly like to buy, but have seen little value to date. Slide four in our strategy. London is our market and has been for 40 years. With a long-term business model, we understand the decisions we take around capital allocation and operational models will impact returns over several years.
Our brand is very important to us, as are our differentiators, including our green credentials and amenity-rich buildings, providing outperformance through strong pre-lettings and tenant retention. Our portfolio has been reshaped to fewer but higher quality buildings. Now, our four key areas of focus are ensuring our portfolio is in the right locations and of the right quality, involving our differentiated product to the changing needs of occupiers, having a comprehensive development pipeline for the short, medium, and long term, and of course, capital allocation. 75% of our portfolio is in the dynamic sub-markets of the West End. Our buildings are well located around London's excellent transport network. Our village-led approach means we invest in a cost-efficient way in portfolio amenity to maximize the benefits to occupiers.
It also means we deliver a design-led product which meets a wide range of requirements from large HQs to our long leases to smaller flex units. Over the next three to four years, we will deliver 1 million sq ft of new best-in-class space across the West End, with a further 1 million sq ft beyond that. Generation has been and will remain an important contributor to our total return, and we're excited about the future, particularly against a backdrop of strong ERV growth. As disciplined investors, capital recycling will always be important to us. Over the last five years, we have actively reshaped our portfolio to ensure that the properties we own are fit for the future or can be repositioned. We're seeing more opportunities to invest and have the appetite to do so. Thank you, and I hand over to Damian on our financial results.
Thank you, Paul, and good morning, everyone. The highlights on slide six reflect the improved property yield conditions that we noted at our interim results in August. With continuing ERV growth and development profits, the revaluation surplus in the second half largely offset the decline in H1. As a result, after adding back dividends paid, our total return for the year was 3.2%, and EPRA NTA per share ended the year GBP 0.2 higher at GBP 31.49. Gross and net rents increased too, and EPRA earnings per share rose 4.4% to GBP 1.065. The final dividend is raised for the 17th consecutive year to GBP 0.555, taking the total to GBP 0.805 per share, 1.3% higher than last year. The total dividend remains 1.3 times covered by EPRA earnings. At this stage of the cycle, we've allowed the gearing to increase marginally, with year-end EPRA LTV now just below 30%.
All debt ratios remain comfortable. The movement in EPRA NTA per share is on slide seven. On top of EPRA earnings, there was GBP 0.02 per share of profit on disposals, mainly from the sale of Turnmill. Total dividends paid in the year were GBP 0.8 , and after accounting adjustments such as the straightlining of rent incentives, the overall revaluation deficit on our wholly owned portfolio was GBP 9 million or GBP 0.08 per share, a strong reversal after the first half deficit of GBP 0.84 . Slide eight shows EPRA earnings. Gross rents increased to GBP 214.8 million, and we also received surrender premiums, of which GBP 1.6 million came from 410 Pentonville Road, where the tenant vacated the building ahead of its sale. Admin expenses increased 5% on higher salaries and bonuses, but property and net finance costs were almost unchanged over the year.
Net finance costs of GBP 39.6 million were helped by GBP 11.2 million of capitalized interest. Due to very strong rent collection in 2024, impairment charges were only GBP 0.4 million, down from GBP 2.6 million in 2023. Overall, EPRA earnings per share were split GBP 0.527 in the first half, rising to GBP 0.538 in the second. Slide nine, gross rental income. Increases here came from ongoing lettings and asset management, GBP 5.2 million from current year transactions, and GBP 6.3 million from those during 2023. GBP 7.6 million was lost from breaks and expiries, and GBP 1.9 million from disposals. On a like-for-like basis, gross rental income was up 2.6%, with net rent up 4.3%. Slide 10 shows our property expenditure over the last two years. Property costs largely stabilized in 2024.
However, some properties with inclusive leases incurred irrecoverable costs, and a few service charge caps were triggered in H2 by EPC upgrade works at Stephen Street. The other main increases were at our lounges and customer service facilities, with a significantly enhanced café offer and a full year's operation here at DL/28 Old Street. As well as benefiting lettings and tenant retention, the related income from these facilities grew to GBP 0.9 million from GBP 0.3 million in 2023. Overall, property expenditure was GBP 24.8 million, equivalent to 11.5% of gross rental income. Slide 11 shows 2024 project expenditure. We're conscious of all capital allocation options open to us and believe that around GBP 200 million of project spend, or around 4% of portfolio value, is an appropriate balance of risk and return. 25 Baker Street took the lion's share with GBP 97.7 million.
GBP 32.3 million was incurred on the main office building and GBP 57.3 million on the build and fit out of the residential for sale, which is held as trading property. We have now contracted to sell GBP 83 million of these apartments, with completion expected later this year. The remaining units will be spread between 2025 and 2026. Note that any trading profits will not form part of EPRA Earnings. The 50 Baker Street project incurred GBP 5 million of CapEx in 2024, GBP 3.3 million while in the JV. Finally, we spent GBP 52.5 million on a number of refurbishment schemes across the portfolio, including GBP 13 million at Stephen Street and GBP 5 million at the upgrade of Strathkelvin Retail Park. Slide 12 sets out estimated future projects. We expect to spend about GBP 207 million again in 2025, a 68% increase over the figure for 2025 that we showed you this time last year.
This comes from project rephasing and added refurbishments, as well as buying out the remainder of 50 Baker Street. Our revised estimate for EPC upgrade costs has fallen to GBP 86 million, GBP 41 million of which is a specific deduction in the valuation. The movement this year takes account of cost inflation, as well as GBP 10 million of EPC spend at Stephen Street. Slide 13 shows our usual pro forma. It includes GBP 292 million of committed CapEx on our major projects and only takes contracted lettings and sales into account. The outcome should be significantly better than this, but it does show that debt ratios remain affordable under this scenario. Slide 14. 2024 was an active year of refinancing. It was also a year when U.K. base rates fell less quickly than expected and which saw continuing volatility in longer-term rates, which moved up notably towards the end of the year.
Currently, U.K. base rates are very close to the 10-year Gilt, both at around 4.5%. Our response has been to arrange additional bank facilities totaling GBP 330 million with existing relationship lenders, two in 2024 and one in February 2025. This provides us with flexibility at increasingly attractive all-in costs and reflects the favorable lending conditions we're now seeing. Details are set out in the note. Note that release of the security on the GBP 83 million loan repaid increased our uncharged asset pool to GBP 4.7 billion, and 85% of our drawn debt was fixed or hedged at year-end. Long-term rates may continue to be volatile through 2025, but we are ready to arrange additional long-term debt when we judge conditions are right. This Slide 15 shows the potential impact of refinancing upcoming fixed-rate debt maturities at 5.25% over the next two years.
Our GBP 175 million convertible bonds fall due in June this year. The IFRS rate, which passes through the income statement, is 2.3%, and the cash coupon 1.5%. Refinancing this at 5.25% would add GBP 5.2 million to our annual interest cost, with a consequent impact on earnings. We show the same analysis for the US PP notes falling due in early 2026 and the LMS secured bonds in March 2026. The latter has a coupon of 6.5%, so we show a saving if refinanced at 5.25%. Our main GBP 450 million revolving bank facility is also due to be renegotiated this year, but we expect pricing to be broadly similar to the current facility. Assuming unchanged debt levels and a future base rate of 4%, this refinancing activity would move our weighted average interest rate up by year-end 2025 to about 4%, and it would remain approximately the same in 2026.
Slide 16. Against this background, although gearing has risen a bit in 2024, our debt ratios and covenants all remain comfortable. Cash and undrawn facilities rose over the year to GBP 487 million and have increased further with the new GBP 115 million facilities signed in February. Our borrowings had a weighted average unexpired term of four years and an average interest rate of around 3.5%. Thank you, and now over to Nigel.
Thank you, Damian. Good morning. Slide 18. After two years of valuation declines, 2024 saw a return to modest growth with an uplift of 0.2%. Key drivers were ERV performance, yield stabilization, and strong development surpluses. There was also good leasing and asset management activity. On our on-site developments, 25 Baker Street, Network, which both complete later this year, they were up 15.1%.
Together, this translated into a total property return of 4.1%, which was a good outperformance against the MSCI London Index, which delivered 1.3%. So, a solid 280 basis point outperformance. Slide 19, themes. As mentioned, our on-site developments, which are 12% of the portfolio, delivered excellent returns. Good construction progress was made ahead of completion later this year. Both projects saw rental growth, and at 25 Baker Street, we pre-let the remaining offices. Their latest yield on cost is now well over 6%, and we expect this to improve with activity at Network ahead of completion later in the year. More details on the appraisals are set out on Appendix 41. As shown on the chart, better quality buildings continued to outperform, generally those over GBP 1,500 per sq ft, driven by quality of space, amenity, and location.
Over 45% of our properties have capital values less than GBP 1,000 per sq ft, and many, such as Middlesex, Greencoat, and Farringdon, are our future pipeline. So, there's good upside to come from these projects down the line. In addition to our on-site developments, we're currently continuing to invest in the portfolio in refurbishments, upgrades, and EPC works. As mentioned, EPC works within the valuation totaled GBP 41 million, and investment was mainly at Stephen Street, although there were other smaller works across the portfolio to prove efficiency. Slide 20, rental value and yields. Valuation ERVs were up 4.3% over the year. We've now had positive rental growth for three years, and this is the strongest figure since 2016. With good demand for quality, amenity- rich space, and green space, this trend looks set to continue, especially in the constrained West End market.
Our average passing rent is just over GBP 50 per sq ft, slightly down over the year following the sale of Turnmill. On a top-up basis, rents are at GBP 63 per sq ft and support continued growth in passing rents, which will flow through to positive rent reviews. On yields, having moved out 120 basis points over two and a half years, and as anticipated, they stabilized in the second half of 2024. While there are economic headwinds and a close watch on the funding market, the valuation cycle appears to have reached the bottom and turned. Our equivalent yield is now 5.73% and a reversion yield of 6.3%. Interestingly, this reversion yield is the highest for over 15 years. Now, slide 21, build-up of the ERV. Our annualized passing rent is GBP 204.3 million, slightly down on 2023, mainly due to disposals.
There is GBP 116.2 million of cash reversion in the portfolio to give an ERV of over GBP 320 million. As shown, GBP 42.3 million of this is contracted uplift, so already captured in the accounting rent roll of GBP 210.7 million. The balance of GBP 73.9 million is a 30% reversion in the portfolio and will be subject to appropriate rent-free spreading when let. The developments at 25 Baker Street, Network, which complete in 2025, could add GBP 34.4 million, which is up over the year. Over 60% of this is pre-let. There are then smaller projects and vacant space. On the right, the key movement in the bridge is the reversion on future rent reviews and lease expires. This was up 160% to GBP 18.3 million as our ERVs move forward across the portfolio, underpinned by strong letting activity and evidence.
This will feed through initially to valuations and then to the income statement as these events come through. Now, the investment market on slide 22. As Paul mentioned, while there are pockets of activity in the market, overall investment transactions remain low in 2024. Smaller lot sizes were more active, especially those in the core West End. While the rental growth picture is more positive, improving forward-looking returns and values, a lot of investors for the cost of debt is holding back activity. However, it is worth noting that we're now seeing greater institutional interest and names from the past re-emerging. Our main disposal was Turnmill in Farringdon for just over GBP 76 million. This single-let property went to a private buyer. On the acquisition side, we bought out our JV partner at 50 Baker Street, having secured a resolution to grant planning this and lock the major development in 2026.
Now, a sustainability update on slide 24. 2024 was a year, a busy year in this area, moving forward on many areas. Our embodied carbon, on our embodied carbon, we formalized our circular economy strategy by joining up with partners, Material Index, and Collecteco. This will be fully implemented later in the year with a Holden House development. It will give us the opportunity to repurpose and reuse a wide range of items from the fabric, such as steel, and potentially the glass, to fit- out elements, including partition doors and raised floors. We also continue to work with our peers, establishing the first cross-industry work group to accelerate the decarbonization of concrete. With a building structure accounting for over 50% of embodied carbon, it's a key priority for the industry.
Elsewhere, our external ratings remained at the forefront of good practice, and we were pleased to move our CDP to Grade A. Behind the scenes for the last 18 months, we've been working on a new in-house database system, and in 2024, this was the first full year of operation. This has automated a lot of our data collection, analysis, and outputs, giving our teams more time to influence. This year, we will further integrate this with our intelligent building systems, which will help us spot trends earlier and react to them. Finally, energy usage on slide 25. As shown, energy intensity was down 8%, driven by our continued tenant engagement and equipment upgrades. Our operational carbon footprint was down 14% as we reduced gas usage, moving more towards electricity.
Our land in Scotland is a key differentiator, and works are progressing in our solar park development where we're on site. Panel installations are expected to start this summer with clean energy generation to start in 2026, and this should deliver about 40% of our managed portfolio requirements. Now, over to Emily.
Thank you, Nigel, and good morning, everyone. We delivered another robust year of letting activity, agreeing GBP 18.9 million of new rent in 2024. Demand was more evenly spread across the portfolio, reflecting the broader recovery across the occupational market. The offices at our major on-site development scheme, 25 Baker Street, are now fully pre-let ahead of completion this year, with an average rent of GBP 104 per sq ft, 16.5% premium to the appraisal ERV. With GBP 1.2 million of letting signed to date and a further GBP 2.2 million under offer, we're confident in the leasing outlook for 2025. Turning now to asset management on slide 28. In total, we agreed GBP 14.5 million of rent reviews, renewals, and re-gears. Rent reviews of GBP 5 million were agreed 8% above ERV. Encouragingly as such, we've seen reversion captured in rent reviews and lease renewals, driving future income and value.
At the end of the year, after adjusting for disposals and space taken back for larger projects, 85% of income exposed to breaks and expiries had been retained or re-let in line with our 10-year average of 84%. Slide 29 and London. London is a leading global city, acclaimed for its adaptability and resilience. It attracts more venture capital investment than any other European city, underlining its role as Europeans' hub for technology and innovation. It has several world-renowned universities, drawing talent from across the globe and across sectors. The forecast rise in office-based jobs and GDP growth further strengthens London's enduring competitive advantage. The importance of office space in London continues to prevail, with businesses across a broad range of sectors strongly emphasizing the importance of having employees in the office, and leadership teams are increasingly issuing clear mandates to this effect.
We are London specialists with valuable insight into how businesses view London on the global stage. It is a city with all the elements for a promising and robust future, and despite the volatile macroeconomic environment, we remain optimistic about London's prospects and its office sector. Now, looking at the occupational market, the key indicators of the occupational market are on the right trajectory, showing promising signs of recovery. Year-on-year take-up has increased by 4%, and we anticipate this upward trend to continue. Vacancy rates across central London fell by 1.1% from the previous year, settling at 7.5%. Grade A vacancy, however, is just 1.9%, nearly four times lower than the overall rate for London. At the end of 2024, active demand reached a record 12.8 million sq ft, significantly above the five-year average, as occupiers look ahead to secure the right space. Slide 31, supply.
Looking ahead, 42% of the market development pipeline out as far as 2028 is already pre-let, leaving only 8.4 million sq ft of committed speculative schemes to complete over the next four years. Applying average long-term take-up levels, this equates to about nine months of total supply in the market. Now, looking at some of the occupational market themes throughout 2024, slide 32. Location remains critical, with micro-locations offering excellent connectivity and amenities becoming increasingly prominent. Quality remains paramount, not just in terms of the design and the building itself, but also in respect of the landlord, their credibility, accessibility, and the approach taken, which seems increasingly valued by occupiers today. And finally, as rents accelerate for the limited supply of prime space, occupiers will consider the stay-put option where feasible, as they weigh out the costs and broader value of an office move.
Before looking ahead at our pipeline and in response to these themes, I wanted to now take a brief look at our portfolio and the differentiated product and offer that we provide. We have a 5.4 million sq ft portfolio in central London, and at the heart of these buildings lies our vision, creating inspiring and distinctive spaces where people thrive. Alongside our belief in London, we are focused on creating a differentiated, market-leading product that we know will capture demand and drive future value and returns. We prioritize innovation, inspiring architecture, and sustainability in our designs. Our approach in building our unique London portfolio considers the needs of businesses today and in the future, as well as the experience of every individual that works in our buildings. The relationships we foster at every level are essential to our success.
We recognize the importance of a user-focused, considered, and personalized approach, which we know yields financial rewards. Now, looking at our strategically balanced portfolio on slide 35, we have a diverse portfolio deliberately aligned with London's demand profile, catering to a wide range of businesses and sectors. Our occupiers range from 500 sq ft- 200,000 sq ft and more, attracting both large, long-term HQ occupiers and small, high-growth businesses seeking ready-to-go furnished space on short-term or flexible terms. With over 70 furnished and flex units now delivered or underway in the portfolio and more in the pipeline, we anticipate organic growth in this offer for spaces under 10,000 sq ft. Alongside this, however, we remain focused on ensuring our portfolio is appropriately weighted towards traditional HQ spaces delivered to Cat A standards.
Our strategic focus is to maintain a well-balanced mix, ensuring a robust WAULT, sustainable profit margins, and efficient operational cost management while meeting the full spectrum of market demand, and our entire portfolio is supported by our integrated DL/ Member offer for all our occupiers, providing tangible value to businesses and individuals alike. We know that 71% of businesses in our portfolio are now actively engaged with our DL/ Member offer, and this has played a part in many transactions, both in respect of attracting new tenants as well as retaining existing. Now, moving on to our regeneration pipeline, slide 38. We have an extensive regeneration pipeline of approximately 2 million sq ft and are currently on site at 25 Baker Street and Network, both completing this year.
Holden House is due to commence in H2 this year, with Greencoat & Gordon and 50 Baker Street commencing in H1 2026. Alongside these schemes, we have two significant rolling refurbishments at 1-2 Stephen Street and Middlesex House, delivering repositioned space over the course of this year and next. And looking further ahead, plans are in motion for schemes at 20 Farringdon, Old Street Quarter, and 230 Blackfriars Road. Slide 39. We made good progress this year at 25 Baker Street and Network. Our profit on cost for the combined projects is currently 15%, a slight increase to this time a year ago, principally driven by market fundamentals as well as pre-lets. Our usual yield on cost, which is on a valuer's appraisal basis, so after rent-free periods, is 6.1% on these projects.
We also now show a second yield calculation as at project completion, which is more in line with how our peers report. This is 6.9% and essentially allows for capitalized interest rather than notional finance cost. For more detail, please refer to Appendix 41. The value of our on-site developments increased 15.1%, reflecting the completion of the pre-letting campaign at 25 Baker Street and further progress on delivery on both sites. A little more on 25 Baker Street. Ahead of completion later in H1, the office space is fully pre-let with a gross rent per annum of GBP 21.2 million and an average WAULT to break of 13.5 years. The positive letting campaign at this building has seen ERV beating increasing since construction started in 2022, with a total beat of 16.5%.
This, alongside our strong roster of tenants, supports our view that rents for the right space in the right locations are rising, with opportunity for good future reversion. As a reminder, the Hopkins design scheme is both confident and classical in Portland stone and reflects timeless and modern architecture. It provides almost 9,000 sq ft of terraces and a unique skyline lounge at the 10th floor level, with panoramic views across London. Turning now to Network on slide 43. Works on site are progressing well, with completion on track for the end of this year and CapEx to complete of GBP 50 million. A beautifully designed Piercy & Company scheme with a carefully crafted facade of scalloped concrete, the building will be a net zero, all-electric intelligent building with our lowest embodied carbon intensity delivered to date.
The double-height terrazzo reception, premium end-of-journey facilities, and roof terraces with uninterrupted views will make this a very special Fitzrovia building in our core village and adjacent to DL/78. We're in active discussions with a number of parties and remain confident in the product we're delivering. Turning now to slide 46, we have an exciting pipeline ahead at Holden House, 50 Baker Street, Greencoat & Gordon House, where we're targeting a combined development yield of 6%-7%. Holden House is a 134,000 sq ft redevelopment behind a retained facade of an original Grade II listed building. Due to commence later this year, the scheme celebrates Charles Holden's architecture and with modern and refined additions. The scheme provides optimum office floor plates of 18,000 sq ft opposite an Elizabeth Line station at the southern end of Fitzrovia.
It will deliver characterful internal space and a beautifully designed atrium, which is not only aesthetically striking, but also functional, contributing to an innovative cooling system that uses natural ventilation. Additionally, the scheme includes rooftop amenities, event space, and terraces. Looking now at 50 Baker Street on Slide 49. Due to commence in H1 2026, just north of 25 Baker Street on a one-acre site, this scheme is bold and rhythmic in its architectural response to the location. The scheme will be 240,000 sq ft, of which 18,000 sq ft is ground floor retail. There'll be seven floors above ground, which are varied in size from 16,000 sq ft to 34,000 sq ft. In addition, we'll be delivering 17 residential apartments on site. Slide 50. The office building will have a dramatic and prominent entrance and voluminous reception.
Large floor plates with 360-degree aspect will allow for abundantly light and bright office floors and once again standout rooftop amenities. Looking now to Greencoat & Gordon on slide 52. We'll be delivering a comprehensive refurbishment of two Victorian warehouses. The scheme will comprise 108,000 sq ft over seven floors and multiple units with terraces on the upper floors and amenities throughout the building. The building boasts an abundance of character and stands out in this busy submarket. As we've done previously at Francis House and Greencoat Place, we will maximize its inherent features throughout the scheme, bringing the stunning architectural heritage of the building back to life. Now, looking at our rolling refurbishments on slide 53, we have an ongoing rolling refurbishment program focused on upgrading existing properties, supporting our commitment to sustainability and allowing us to deliver strong, attractive rental uplifts and returns.
Some examples of projects in our current pipeline here include Middlesex House and 1-2 Stephen Street. And looking further ahead to the longer-term pipeline, we have several exciting projects in the longer-term totaling over 1 million sq ft, with studies underway at 20 Farringdon, Old Street Quarter, and 230 Blackfriars Road. To maximize value on our longer-term projects, we are and will be exploring the appropriate balance of uses to maximize value, including residential and other living sectors, in particular at Old Street Quarter. And finally, on slide 55, as I hope these slides have shown, we remain design-led in all that we do, with ambition to deliver the very best workspace for London's current and future office demand. We prioritize brilliant architecture and interiors and an innovative approach to holistic design.
Above all, however, we're focused on designing, building, and shaping a portfolio for future success and to drive values and returns through strategic capital allocation.
Thank you very much, Emily. Slide 57, a strong total return outlook. Derwent has a well-stocked pipeline and a portfolio which is well aligned to the occupational market. We're seeing a significant increase in our reversionary profile, which will drive capital values in the near term and gross rental income over the medium term as it is captured. Our predominantly West End development pipeline will be delivered in an increasingly tight market. Supported by the investment we have made in our member initiative, including our lounges, leasing prospects are strong. We're committed to capital recycling. As well as ensuring our portfolio remains fit for the future, it will also provide the firepower to fund both annual CapEx and potential acquisition opportunities which we expect to emerge.
Now, to remind you of guidance, we expect average ERV growth for our portfolio of +3% to +6% in 2025, with a range of performance depending on quality, location, and state of lifecycle. Supported by ongoing ERV growth and assuming valuation yields remain stable, our total return outlook is the strongest it has been for several years. Thank you, and we now take questions from the room and then from those who've joined remotely. So who wants to raise a hand? Please. Over here. Thanks, Dina.
Callum Marley from Kolytics. Congratulations on the good results. Just two questions. Looking at the financing section of the presentation, you've noticeably increased your exposure to unhedged floating debt. I believe you also have about GBP 75 million of swaps expiring this year.
Can you explain the rationale there, given the growing inflationary pressures, both internally and obviously from the risk of tariffs, and also your comments that the bond market is likely to stay volatile this year?
Damian, I'll pass that to you.
Yeah. I mean, this is all about getting the balance, I think. We've been very heavily hedged and fixed for the last few years. Last year was an interesting year. Rates were a little bit difficult to predict. I think we're getting to a situation now where floating rates may come down a bit further, fixed rates may not. So we've got a current base rate of four and a half. If you apply a sensible margin to that, you're looking at some mid to slightly above that fives all-in rate. If that comes down a bit further, we're expecting further cuts this year.
Can't be guaranteed, but we're expecting them. That might come down to the low fives, and that's pretty much in line with where long-term rates are as well. So it's quite an interesting position. There isn't actually much of a difference at the moment. At the right time, we're ready to go and fix a bit more. We'd definitely like to. Currently, we're 85% fixed. That will come down a bit later in the year, but we'll still be substantially hedged. So we're comfortable with the situation. It's a difficult judgment. Clearly, one likes to have long-term fixed rate debt, but you need some flexible bank debt as well because we move up and down the leverage cycle a bit as well. I hope that answers the question.
Yeah, that's clear, and then just a second one. I'm going to jump through some pages here.
Page 100, where you've got the development pipeline for the office market. There's a significant amount coming online in 2025. And then page 85 as well, where you're showing your expiries for this year in 2025. Also quite large. What's the risk there to your kind of long-term or this year rent forecast of 3%-6% and also your current low vacancy levels?
Well, our vacancy rate's obviously reduced. Our retention rate historically has been very high. I think for last year, it's 85%. I think the point that Emily's made about our lounges, etc., our member offer, that seems to retain an awful lot of occupiers. So I feel pretty positive about the ability to retain our occupiers. And I'd rather move around. Emily, do you want to add some points to that?
No, I think in respect to the expiries coming up in our end portfolio, obviously we're already in discussions on many of those. And in respect of slide 100 and the pipeline, over 50% of those schemes coming through this year is already pre-let. And as is often the case, some of that will bump into future years as some delays do happen. So we're proactively managing.
It's also just worth looking at on 85, the rent passing on those. You can see passing rents 58, ERV 65. So this is a point. These are not expensive rents to come off, so some may stay.
Thank you, Callum. Who's next? Please.
Thanks very much. Max Nimmo at Deutsche Numis. Maybe just on the investment markets. You said you were not quite seeing value just yet.
And I'm just quite interested to understand if we're starting to see more institutional buyers coming back to the market, is there a chance that actually, if vendors hold their nerve, you may not actually find value and a chance to buy? So that's the first question. And on the second one, just on the 3%-6% ERV growth outlook, it's obviously in line with where you were in the second half of last year. But clearly, as Emily was saying, the indicators are all kind of moving much more positively. And I think we can all see that.
I'm just wondering, should we read this as this is how much ERV growth we think the valuers are likely to kind of allow us to push through rather than actually what you're actually seeing on the underlying market, given you're leasing 12% ahead of ERV and 25 Baker Street was 16 or something ahead? So just your view on that as well.
I'll start in our opposite reverse order. First of all, the ERV growth +3% to +6% is an average across our portfolio. And you have to look at some of the assets that we hold back for future development, short-term lettings and the rest of it. So it is an average ERV rather than necessary headline ERV for new lettings and the rest of it. So we feel pretty positive. We upgraded the guidance, as you know, in August, and we reaffirmed that.
We did 4.3, which is double what we did the year before. So I feel very positive. I think for these schemes, you would expect to continue to outperform that. But as I say, that is a valuation ERV. In respect of the investment market that we've bought in the 50 Baker Street, we want to be active in the portfolio that is in good shape. The balance sheet's in good shape. We would certainly like to add to it where we can. We might sell a little bit as well. So we're always looking, I think, but we've also remained disciplined to make sure we don't chase the market and pay too much for something. So hopefully, 2025 will be a very active year. You're sitting next door to our director of investments, and he will notice that question and continue looking.
Anyone else want to add anything to that? Emily on ERVs and.
I think you've answered your own question, Max, in terms of it is very much a valuation ERV. So we've got to look at the whole portfolio as an average. I think what's encouraging is that all of the big houses, and Knight Frank recently noted at their breakfast, that all submarkets are now showing growth over this year. So both in terms of location and quantity, that demand is kind of spreading healthily across the market. And as you've seen at Baker Street, as we've gone through the scheme and even going down the building, rents have moved in the right direction. So we're pretty optimistic that those market rents are going to be well ahead of that six, but the three to six is the range of the portfolio.
I think that's an interesting dynamic that happened in 2024. You've seen our peers have been saying the same thing, that actually it's not just the top-end rents that have been rising. Rents right across our portfolio have been rising. Whitechapel had a particularly good year last year with very strong rents. And so for the right stock in the right location, that has to be close to Elizabeth Line or mainline station. I think we're pretty positive for the whole of central London. So hopefully our ERVs will be even stronger than our average valuation ERV.
I just want to add one final point. You've got to remember the valuation ERV is some of its rent reviews, so it's net effective. And so you need the headline and the discount for that. Also on the pre-letting, you're pre-letting ahead of completion.
So you'd expect to try and capture some of that growth for when you deliver. So it's a bit more detailed than that.
But anyway, thank you very much, Max. You've got a supplementary question or is that deal with both issues?
That's fine.
Who's next? Oh, please. Zach. Is it working?
Yep.
Good. Well done.
Good. Good morning. Yeah, I thought a very solid set of results. Sorry, Zachary Gauge from UBS. Just a question on page six of the.
The mic's been switched off. You press the button and switch the mic off.
Is it working now?
You don't need to switch the mic to on or off, by the way.
Working now?
Yeah, that's better. Well done.
Yeah, I think I turned the last one off, so that's going well.
Easily done. Go on.
Yeah.
Upskilling.
Yeah, sorry, Zachary Gauge from UBS.
Page six of the press release, you have sort of a paragraph on earnings. You mentioned the lumpy nature of developments, the income coming online, capitalized interest going offline, and of course the increase in finance costs that's already been mentioned, and that may impact debt per earnings in 2025. So can we read into that that potentially we do see a drop-off in earnings in 2025? I know consensus is slightly up in terms of what they expect to be, but is that sort of an indication that earnings may decrease next year, potentially even into 2026, as you also lose the rent from the two schemes that are potentially going under construction?
Damian?
Yeah, I mean, we've given quite a bit of guidance there. I think we think rents are going to go up a bit. We've commented quite a bit on the financing costs.
They're definitely going up by more. So I think you can expect to see EPRA earnings fall a bit this year. But don't forget, we've got the trading profits coming through from the George Street apartments. It doesn't go into EPRA, but it's definitely still earnings. So it's interesting. Overall, the next two years where you might see those interest costs go up before the rents really get captured, but we've got the sales from those residential apartments, which will offset that. So it's a sort of technical point. EPRA doesn't include trading profits from those residential sales, but they're part of our overall property return from that mixed-use scheme. So I hope that gives you a feeling, and then going through two- three years later, we should see the ERVs captured and the earnings starting to move forward as well.
The important thing to point out, though, is our total return outlook for the next two years is the strongest it's been for really several years. So earnings are important, but there's more to it than earnings. We are capturing good value increases from the ERV growth and the developments as well.
Good. Thank you very much, Zach. Anyone else who's got a question? Anyone else on the floor? Right. Have we got anything on the telephone at all? One? Okay. Is that from the web, is it?
Valentina, I think, is going to take some questions now from the call.
Okay.
Hello? Nope.
Don't worry. Patience is one of my very strong points. Miranda doesn't believe that, but anyway. No?
Struggling with technical issues, so apologies for those online. If there are questions, then do feel free to come through to me, Robert Duncan.
Well, yeah, exactly.
Why don't they come through by email? We're trying to answer that. So I know it's going to be a busy day. Some of you are going to disappear down the road. So if we've got any more questions, thank you very much for attending today. Have a good day. And I want to finish by wishing Miranda all the best for her future job. She's going to the other side. I wouldn't say the dark side, but she's going to the other side. We wish you well. We will miss you from future presentations. Thank you very much indeed. Good luck. And have a good day, everyone. Thank you very much.