Right. Good morning, everybody, and welcome. Welcome to our Interims Presentation. It's great to see you all. Thank you very much for coming. We really appreciate your time in these busy days, and it's terrific you've given it some of yours. Thank you. So, I'm gonna start this morning, if I may, by summarizing some of the key messages that we're gonna address through the next 30 or so minutes. In our finals in May, I talked about near-term challenges in our markets. Since then, macro concerns have dominated, which, along with rising interest rates, have impacted sentiment and pushed yields up, affecting our property valuations. But these concerns have also triggered the return of the cycle for the first time since 2016, and with that will come significant opportunity, as I'll describe later.
It's also very clear to us that in our leasing markets of core Central London, the fundamentals of supply and demand remain pretty healthy. London is busy. Workers have returned. Organizations and their people have worked out that fit-for-purpose, sustainable offices have a crucial role to play in the world of work. And so we are seeing demand for quality spaces outstripping supply, with a huge bifurcation between the best spaces, the sort of product that we deliver, and the rest. So our message to you today is that in this context, GPE's positioning is strong. Demand for our spaces is good, and our rents are rising across both office and retail. We're developing more of these spaces and growing flex. We're recycling out of completed opportunities and reinvesting into new ones, always from a position of financial strength.
So over the next few slides, Nick and I will expand on these main messages and provide you with the evidence to support our long-term positive conviction, and we'll then open it up to you, and I'll have a collection of my colleagues on-hand to help answer any questions that you may have, be they live or online. So let me start then with a reminder of our strategy and how we're addressing today's key themes through our strategic givens, all of which you'll recognize and which have stood us in good stead over multiple cycles. Theme one: macro challenges, and our policy of low financial leverage through the cycle and our focus on markets with deep demand and supply shortage will enable us to take advantage. Theme two: the best spaces are clearly outperforming the rest. We create the best, it's leasing well, and prime rents are rising.
Plus, we are 100% in Central London, 75% in the West End, a market with one of the lowest vacancy rates anywhere in the world. Theme three: the best is changing. Our repositioning model means we're addressing customers' changing needs, delivering sustainable, flexible, healthy, tech-enabled, and connected spaces. Take flex. It's of growing importance across London, and we're ahead of the market with our ambition to reach 1 million sq ft. And we're delivering for customers through our compelling service-led offer, resulting in our market-leading Net Promoter Score of 61.5, shown bottom left, against an office market average of only 3.8. Theme five: sustainable spaces win. For us, it's an economic imperative, and we know that sustainable spaces are worth more, with a BREEAM rating adding, on average, more than 20% to an asset's value.
Our innovative approach is delivering one of the most ambitious circular economy projects anywhere in the industry. With the return of the cycle, shown bottom right by the falling MSCI line, we will continue matching our risk to the cycle, taking advantage, as shown by the purple bars, through selling prime completed business plans and buying opportunities to create prime into a supply crunch. Disciplined capital management, both at the asset level and also at the equity level, raising money to invest accretively when prices are low, shown by the green circles, and returning excess equity following profitable sales, shown by the pink circles. We're addressing all of the key themes through our differentiated growth strategy, which will set us up well for the more dynamic market conditions of today. Don't forget, we've been here before over multiple cycles.
We're good at executing, we know how to do it well, and this time will be no different. Our approach is clearly working. We're operating well from a position of strength and with lots of opportunity. First, our strong leasing continues. We've delivered more than GBP 11 million of investment lettings in the first half, in line with last year, and at a record 13.4% beat to March ERV, with flex and retail lettings 12.2% and 18.1% ahead, respectively. Plus, we have a further GBP 7.3 million under offer at a 5.7% beat to ERV, again, with flex performing well, +13.6%. Our leasing is really strong. Our vacancy rate remains low, our reversionary potential is up, and our customer retention rate over the past 12 months is high at 77%.
Second, our capital opportunity is extensive. We're selling, crystallizing value, and we have circa GBP 300 million under negotiation or in active discussion. Through our CapEx program, we're creating new, best-in-class spaces, 1.5 million sq ft across 45% of the portfolio, 82% of our net assets, are both, both, both across our HQ and our flex spaces. We're buying again, taking advantage of more attractive pricing with three acquisitions since March and more to come. Third, our financial strength remains an absolute given, built on our low LTV and our deep access to capital, with plentiful liquidity today of more than GBP 500 million, and a relatively attractive cost of debt, most of which is fixed or capped. We're in a strong strategic position. Our clear and differentiated strategy is hitting all of the key themes.
As you'll hear from Nick in a minute, we have strong income growth to shoot for and a senior team with deep experience over multiple cycles, all of which is supported by great balance sheet strength. Plus, we remain passionate believers in our capital city's prospects, as I'll talk about in a minute, but first of all, over to Nick to look at our results in more detail.
Thank you, Toby. Morning, everyone. I will walk you through the headlines of our valuation and financial performance, as well as our robust balance sheet and significant liquidity, as we deliver our development and flex ambitions to meet our customers' evolving needs. So starting with the numbers, which were clearly impacted by the higher interest rate environment. The group's property portfolio now stands at GBP 2.3 billion, with the 10.3% valuation decline, the principal driver of the 14% fall in EPRA NTA to 650 pence per share, as shown on the right. Over the same period, portfolio rent roll increased by more than 4%. EPRA LTV increased to 28.9%, given our investment activities and the portfolio valuation decline, whilst our financing activities lifted our liquidity above GBP 500 million.
With net rental income rising by 6.9%, EPRA EPS rose by 4.4%, despite higher interest rate costs, as you can see on the chart. With our strong financial position, we are paying an interim dividend of GBP 0.047, and there's plenty more detail on our financials in the appendices. Now, more on the valuation, with a continuation of the trends highlighted in May. ERV growth remains resilient at 1.8% overall, including the return of retail ERV growth of 1.2%. With yield expansion of 43 basis points, overall values declined by 10.3%. However, offices, which represent more than 80% of the portfolio, fell less than retail, with our flex spaces the strongest relative valuation performer.
As shown on the right, our topped-up initial yield is now 4.2%, and more relevantly, the equivalent yield has risen to 5.2%. This is well above our 10-year average and even ahead of the 20-year average. Plus, there's a clear delta between West End yields and the rest of Central London. Our reversionary yield has also risen to 6.2%, and of course, our share price implied yield is higher still. Bottom left, we show the portfolio composition, with 71% offering significant active management and development potential. As expected, residual values and shorter income assets in the development pipeline suffered the largest value declines. Values are now down to only GBP 200 per sq ft in some cases, and we will, of course, be transforming these assets into prime, modern, sustainable spaces.
The remaining 29% of the portfolio is already prime. These are long-dated properties, which we've created, all in the West End, with attractive recycling opportunities. Finally, the best continues to relatively outperform at both an ERV growth level in purple and by valuation shown in green. By EPC ratings, our A and B spaces outperformed, as did our higher capital value per square foot spaces, and our West End properties, representing three-quarters of the portfolio, outperformed, too. And as you'll hear from Toby, we expect these trends to continue. Turning to our balance sheet. Shown top left, our EPRA LTV continues to be within our 10%-35% through the cycle range. We have recently arranged our well-priced and flexible GBP 250 million ESG-linked loan.
Our liquidity has risen to GBP 508 million, with only GBP 175 million of debt maturities before September 2026. Bottom left, we continue to have significant headroom on all our debt covenants, which are identical across all our unsecured instruments. Finally, our weighted average debt maturity is around five years, and 97% is on a flexible, unsecured basis. 93% is at fixed or capped rates, and the weighted average interest rate of our drawn debt is now 4.2%. So balance sheet strength continues to be a GPE strategic given. Moving to our, moving to our attractive organic growth opportunity, with just under GBP 400 million of committed CapEx into a supply-constrained prime office market.
Following our recent commitment to French Railways House and works progressing well at our pre-let 2 Aldermanbury Square scheme, we have GBP 350 million of committed CapEx across our HQ spaces. With Soho Square added to the near-term pipeline and our New City Court business plan under review, we have a further GBP 229 million of prospective near-term HQ CapEx. Overall, our four office-dominated schemes will deliver prospective ERV of GBP 60 million, a 12-fold uplift on their current rent roll. Shown bottom left, we continue to invest in our flex space offer, predominantly delivering fully managed West End spaces with GBP 171 million of total prospective CapEx.
Some of this is into long-standing GPE buildings, such as Egyptian House on Piccadilly and Kent House in Fitzrovia, and the balance is into recent acquisitions, such as Wardour Street, specifically purchased for upgrade and delivery as fully managed space. So a quick reminder of our unique flex offer. Unlike WeWork, we own and operate all our high-quality spaces. Unlike co-working, we are leasing them on a floor-by-floor basis, not by the room or by the desk. Some customers are taking the space on a fitted and furnished basis, but many more are taking up our fully managed service. And it's leasing well, with GBP 6.4 million of deals in the half. The majority were in fully managed spaces, nearly 14% ahead of ERV, and in the West End, where we secured average rents of GBP 253 per sq ft.
We're leasing the space quickly, and our customers are in good health and paying on time, too, with no delinquencies. As you can see on the left, our flex leasing momentum continues to build in terms of volumes, the beat to ERV, and the average rent achieved on our fully managed deals. This leasing is driving our flex financial performance, with strong beats at both the cash flow and rent level relative to ready-to-fit, including a 103% beat on fully managed spaces, well ahead of our 50% target, as we deliver an all-in-one service for our customers. You can find more detail on our flex performance metrics in the appendices. As shown at the bottom of the table, we're getting good lease duration, too.
Nearly six years on fitted deals and more than two years on fully managed, a clear differentiator to serviced office operators. As a result, we've continued to grow our committed flex footprint to 434,000 sq ft across 20 buildings with an average unit size of more than 2,000 sq ft and lease length of 3.7 years. Shown in the pie, 189,000 sq ft is in fully managed spaces, of which 114,000 is currently under refurbishment. The 75,000 sq ft of let space has an annualized rent roll of GBP 13 million and a post-OpEx NOI of GBP 7 million. On completion of the refurbishments by March 2025, we expect our fully managed spaces to be delivering GBP 17 million of annualized NOI.
As shown on the right, this is way ahead of the GBP 11.9 million, if let as ready to fit, and we're on track to deliver GBP 2.6 million of services profit, effectively our net beat against the comparable fitted ERV. Based on the 8.5% cap rate that CBRE applied to this profit, implies additional value of nearly GBP 31 million, more than GBP 160 per sq ft. So there's plenty more income and value upside to come from our flex spaces. As a result, we're targeting further growth to more than 1 million sq ft. To be successful, continued strong customer satisfaction is key, and our net promoter scores are already market leading, higher still for our fully managed spaces.
Our customer retention is strong, too, at 68% across our portfolio since 2018, rising to 85% for our fully managed spaces. Through customer retention, we reduce both friction and vacancy costs whilst also lowering refresh CapEx spend. And not only are we retaining existing flex customers, whether in their current space or through moving them into growth space, we're also transitioning long-standing GPE ready-to-fit customers into flex, and we're attracting new customers, too, including well-known blue chip businesses. Plus, there's a clear market opportunity... with demand for Central London flex space expected to grow to 50 million sq ft by 2028, and more than half of London occupiers expecting to have at least 10% of their office footprint as flex. And we were right with our prediction that flex would become the default choice for customers with smaller space needs.
Over the last 12 months, nearly 60% of sub-5,000 sq ft lettings in the West End were on a flex basis, and we expect this percentage to grow further. There's a clear opportunity for GPE, too, with more scale providing clustering benefits to our customers and increased operating efficiencies for GPE, along with pricing power. We will access additional fit-out CapEx economies, while also leveraging the flex team capability that we've already assembled. We'll achieve greater scale through 48% of planned organic growth, with 208,000 sq ft of existing GPE space conversions by 2028, the majority in the next 12 months. Plus, we have a proven acquisition track record, with clear criteria and a disciplined approach.
As you'll hear later, we expect to unlock further acquisitions over the next 12 months as we move towards our 1 million sq ft flex ambition. Lots of growth to aim for. To wrap up from me, while in the near term we may see a little more selective yield expansion, we expect the best to continue to outperform with further ERV growth. We have an opportunity to deliver more of the best through both our committed CapEx program and the recent addition of Soho Square to the pipeline. Our growth ambitions for flex are supported by growing demand, along with continued strong customer satisfaction and retention, which will deliver income and valuation upside. Our balance sheet is strong, with our consistent commitment to conservative leverage and high liquidity, likely supplemented by continued recycling activity, along with proven access to wider sources of capital.
Our recent senior operational team changes will help drive performance and optimize costs, while we continue to invest in technology and our customer focus, and we have maintained the ordinary dividend. While we expect EPS to reduce over the next 18 months, given our portfolio activities and increased average interest rate, shown top right, we have significant organic rent roll growth potential of more than GBP 100 million or 90%, shown bottom right. So a significant opportunity for GPE. And back to Toby for a few comments on market.
Thank you, Nick. So let's take a look then at our markets. In the near term, at least, macro challenges persist, principally affecting yields, as we've, as we've shown, and economic growth expectations are pretty anemic. Central London continues to outperform the U.K. with better projected growth, and we think leasing fundamentals across the capital remain compelling. Its population is growing, and Oxford Economics expects around 135,000 net new office jobs to be created by 2028. Yet the barriers to entry on the supply side are rising to levels that we have never seen before. While demand for centrally located, quality, sustainable space is up, meaning that the supply-demand equation is moving further in our favor, with a widening gap between the best spaces and the rest.
All themes then that we stand to benefit from as we successfully dial into the richer themes of demand, delivering prime sustainable HQ and great flex spaces in the core. So starting top right, best rents, shown by the dark blue line, have been strongly outperforming the rest, with these deals representing an ever-increasing share of the total market, up from 13% in 2018 to 32% today. In bottom left, you can see that both takeup in the six months to end September and space under offer are broadly in line with the 10-year average. While active demand, that's named companies out looking for space today, has jumped since March.
In fact, it's up 12% and is some 17% ahead of the ten-year average, as you can see bottom right, and almost all of the net increase is for space in the West End, shown in black, with the financial services sector looking for 1 million ft more than it was back in March. And it's not as though there's much space for them to move into. So whilst Central London vacancy at 8.5% across all grades of space is higher than we would like, it's way lower than our principal competitor, Manhattan, with the West End being lower still, at 3.8%. In our main market of Prime West End, it's only 0.9%. And nor is this lack of supply going to change anytime soon.
You'll remember, we've been warning of a shortage of Grade A new supply in Central London for years as barriers to entry have risen, not least an ever more challenging planning environment... We've updated our projections, and we expect the shortage to remain extreme, with new deliveries, shown by the bars, being way lower than market commentator predictions, shown by the pink diamonds. So we think 2.7 million sq ft of space will complete annually between now and end 2026, which means that if the 10-year average lease-up of 5 million sq ft annually continues, we will need to build 84% more than we are every year to meet this level of demand.
Returning to our rent bifurcation story shown bottom left, with such tight supply, Savills expect prime rents in both the City and the West End to grow from here, disconnecting further from Grade B rents, shown by the dotted line. We would absolutely agree, although we repeat our view that the West End will outperform the City by more than is shown here. For those worried about growth from the perceived high absolute levels of rents, particularly in the West End, remember this: Even after the rental growth of the past few generations, rents have been structurally declining as a percentage of salary costs since the 1970s, as you can see, bottom right. Today, they're less than 10%. In a war for talent, we expect to see companies continuing to seek out the best spaces to help them attract and keep the best people.
So a bit of extra rent to keep 90% of your cost base happy makes, we think, very good business sense. And so, with 75% of our portfolio in the core of the West End and 93% near an Elizabeth Line station, these conditions play to both our positioning and to our strengths. Turning then to the investment markets. Rising interest rates have accelerated the return of the cycle, as shown on the chart on the left, with recently elevated inflation dramatically eroding real returns, shown by the purple line, now approaching the lows of both 1992 and 2008. We're also seeing a jump in the quantity of assets for sale, as shown on the right-hand chart. Working from the left, in May, there was GBP 4.6 billion on the market.
Since then, only GBP 0.3 billion has sold, GBP 2.1 billion was withdrawn, and with a further GBP 4.1 billion added for sale, there is GBP 5.7 billion on the market today, up 24% since May. Meanwhile, macro concerns and the recent jump in the cost of capital has reduced the quantity of equity looking to invest. It's down 27% since May to GBP 20.2 billion. The detail is in the appendices, but the main reduction comes from overseas investors, particularly Asian, down some 33%. Taken together, the multiplier of equity to assets for sale is down to 3.5 x from 6 x in May. So given these conditions, we expect to find plenty of new opportunities for value creation.
Summing up then, our view on London markets, in the near term, while macro uncertainties remain, the driver for rents, shown on the left, feels similar to earlier in the year, with the low vacancy and the shortage of development completions providing compelling impetus for rental growth, particularly for Grade A space. Looking at our own portfolio, bottom left, the middle column shows we've generated rental value growth of 1.8% over the first half towards the middle of our forecast range for the year. And with our best spaces performing well, we are upgrading our forecasts for prime offices, with the top of the range now +8%, and we've also raised the lower end of the range for the whole portfolio, meaning we're now forecasting rental value growth of between 2.5% and 5% for the year.
For yields, higher rates are likely to maintain upward pressure on some assets in the near term, and we expect the City, the West End to outperform the City, with prime and liquid lot size assets to fare significantly better than average quality assets over the medium term. Let's turn then and look at activities in the investment markets over the first half. As you can see from the bar chart, the market has evolved pretty dramatically since we reported in May, and the quantity of attractively priced opportunities is increasing. Six months ago, 74% of the deals we were tracking had traded at overpriced levels, being more than 10% above our view of fair value, shown by the blue segment on the left. In the six months since then, 34% has been overpriced. 16% was near fair value in May.
Today, that number is 36%. 10% was at fair value in May. We bought it all. Today, it's 30%, and we bought about half of it, so a real change overall. Since March, we've acquired three properties in total: Wardour Street and Bramah House, both for flex I talked about in May, with Soho Square, shown on the right, our most recent buy. It sits next to the Elizabeth Line in the heart of the West End, fronting onto Soho Square and running through to Oxford Street. As you can see, it's a ragbag of time-expired buildings, giving us a fantastic opportunity to create best-in-class, amenity-rich, and sustainable new spaces in a location with deep customer demand and no new supply.
We paid GBP 70 million for this freehold site with an existing consent, meaning we are in for GBP 770 a foot on the consented area. We expect to improve and add new square footage to the planning permission, delivering brand-new prime office and retail space. Taken together, that's GBP 123 million purchased since March, all core, all prime HQ or flex opportunities, and each with accretive IRRs. We're also investing across our portfolio through significant CapEx, timed to deliver into an economic recovery and a deep supply shortage. We have two committed schemes, 2 Aldermanbury and French Railways House. They're 69% pre-let already. We have six flex refurbs and a further five HQ schemes, bringing the total to 13 schemes, covering 45% of the portfolio.
Turning to the HQ program, we have four committed or near-term schemes, all prime, all core, each with exemplary sustainability credentials and with strong preletting potential. At 2 Aldermanbury, shown top left, yield expansion post our 100% pre-let to Clifford Chance has unsurprisingly impacted our returns. As we said in May, we expect the quality of the building and its income will stand us in good stead when interest rates reverse their recent trajectory. Meanwhile, we're delivering on our UK first of steel reuse within a portfolio, both here and at French Railways, and we are on budget and on time to finish in Q1 2026. At French Railways, top right, we're now consented and have committed to start in Q1 next year to deliver 67,000 of the very best sq ft in St James's.
Our numbers are healthy at a near 16% ungeared IRR, and our prelet potential is strong. The same applies to our two near-term schemes, Minerva, bottom left, and Soho Square, bottom right. Both will be as good as it gets in their local markets, and we expect to prelet them well, probably ahead of our underwritten rents. So taken together, our four best-in-class projects total 0.6 million ft, up 65%, and will generate at least GBP 60 million in new rent, up 164%. So let's sum up then and consider where next for GPE's capital activities, and in short, it's about taking advantage of the re-emerging cycle once again. As you can see, top left, we were a net seller last year, and as markets have corrected, shown by the MSCI line, we've been a net buyer so far this year.
For the balance of this year in 2024, we're focusing on three principal activities. First, progressing our CapEx program. As I've said, it's well-timed into a supply shortage, and with healthy demand, we expect rents to rise. Second, we will grow our flex space, shooting for 1 million sq ft through organic growth and acquisitions. We've built the operating capability. We know our brand of flex is a growth market with strong demand, and again, we expect rents to carry on rising. And third, we'll continue our long-held strategy of recycling capital, buying value-add opportunities, and we're currently reviewing circa GBP 700 million of deals, as you can see on the chart, bottom left, almost half of which is off-market.
We're also selling with around GBP 300 million in negotiation or early discussions, crystallizing value on the completion of business plans, typically through exiting finished and leased HQ developments and redeploying into the next round of opportunities. And as you can see from the chart, bottom right, more than 80% of our GBP 3.2 billion of sales since 2012 have been in larger lot sizes, shown by the purple bars. And with somewhere between GBP 0.5 billion and GBP 1 billion of end value in our next four HQ schemes alone, it's clear that we will have the potential to feed the strongest part of the investment market with the highest quality stock for some time to come. So a very clear operating direction, taking advantage of this new phase of the cycle and built around our tried and tested capital allocation discipline.
Finally, then, to sum up, and GPE is a business full of opportunity, with a clear strategy centered on our focus and deep knowledge, built on meeting customers' changing needs through our HQ and flex products, both of which have great potential. And it's a differentiated strategy with our customers and sustainability at the heart of every decision we make. Meanwhile, our markets are increasingly interesting. In the short term, macro impacts will continue as they adjust to higher rates, and the cycle is definitely back, meaning more opportunities are coming, but this time with a big bifurcation between the best and the rest. And we remain positive for the medium term. Employment indicators are supportive. Customer demand for our HQ and flex spaces is strong. We have a serious supply shortage of Grade A space, and rents are rising.
Whilst investor demand is down, it's robust for the best prime assets. We reiterate our enduring belief in London's long-term prospects, both absolutely and relative to some of our principal competitors. It's still a magnet for new industry and talent, and its workers have returned, and one year in, the Elizabeth Line is clearly a game changer. 93% of our portfolio sits near a station. Plus, our portfolio is full of opportunity. In HQ, where we are delivering the very best of low current book valuations. In flex spaces, which customers love, and we're going to grow, combining to give us organic income growth of 90%, to which we expect to add through well-priced acquisitions.
All of which is made possible by our strong balance sheet, our continued recycling discipline, and by our powerful collaborative culture and our deeply experienced team, who've traded successfully through multiple cycles. So GPE is in great shape, with all to play for, and we remain confident in our positive prospects for the long term. Okay, everybody, that's the formal bit out the way. I've got some of my esteemed colleagues to help, answer any questions you may have. I think we have microphones in the room somewhere. We do, at the back. There we go. Thank you. So, do we have any questions? After such a full and complete presentation, I wouldn't be surprised if not. However, you normally do. Yes, the back. Thanks.
Callum Marley Kolytics. Just a few questions, if I may. Can you provide a little color on the range you gave for rental growth on one of the slides for the full year, 2024? Maybe some of the drivers that get you to the upper end of that 5% target and some of the offsets, maybe vacancy picking up further.
Yeah. Okay. Callum, good question. Rich, if we could go to the... Thank you very much, traffic light slide. Marc, if you would like, in a second, just to give us a bit of color on where you're seeing the demand for our spaces, that would be helpful. So we're talking about the bottom left of this chart here, in which, as you've rightly pointed out, we've raised our forecasts on expectations for rental growth over the year. And I think, Callum, it's essentially based around the fact that we've got demand for our spaces every day. We're seeing new customers coming and talking to us and wanting to lease from us, and yet the supply of space is as tight as it is. Just one other contextual comment.
The discussion that you still read about in the newspapers around the work- from- home challenge to offices is now, I think, a non-discussion. That battle has been won. Good offices are unquestionably in demand. We don't see any reason for us to be worried about the requirement that customers have for new spaces in really well, amenity-rich, well-designed spaces such as we have. So that argument, I think, we've moved on from, and you can see that, Marc, in the demand that we're seeing, the sorts of companies that are coming to us. Do you want to just give a bit of a flavor as to where they're coming from?
Morning. Yeah, so I think, as far as active demand is concerned, today, we're at 11.6 million sq ft, which is the fourth consecutive quarter where active demand has increased. I think where we're seeing that, predominantly in the West End, where requirements for 50,000 sq ft are increasing, and also in the City, where requirements for 100,000 sq ft are increasing, as well. One of the big features in terms of demand is actually that there are more expansion requirements than there are of those decreasing. 44% of all requirements are an expansion, 18% are decreasing. So where are we actually seeing it? Banking and finance is now 40% of all active demand, and it's actually at the highest level for nine years.
And there are some big requirements out there, but there's also quite a lot of smaller requirements. And certainly, when we think about French Railways House and our optimism to achieve some big rents there, potentially in excess of GBP 200 per sq ft on the upper floors, which have terraces, and that building has a communal terrace as well, we are confident there. But also, professional services is currently 25% of all active demand, and we're also seeing an uptick in media and technology. Again, there are some large requirements, and certainly when we think about Minerva House, as a Central London-marketed building, we think that maybe media and technology would be looking at that as well.
Yeah.
Overall, healthy demand right across the board.
Great. Thank you. Callum, I hope that answers your question.
Yes, two more, if I may. Just regarding your admin expenses, which have been growing as you push into flex, how do you see these costs evolving from here? And I think some of your comments, do you see an inflection point over the next 18 months, and kind of at what rate does that change?
Okay. Do you want to get your second question, the last one, was that-
I can. And final question, just broader on maybe the macroeconomy. LTV increased to 28%, and you've moved up to your upper target there. And there was a slide, I think, where it showed it pushing up above 40% in 2009. Just given what you're seeing today in terms of volatility in the bond market, uncertainty in the investment market, how confident are you that you can stay within that range, going forward?
Yeah. Okay. Nick, maybe you'd like to deal with that second question in a second. On the admin, I mean, I think what's happening there is, clearly, we've been building our infrastructure to deliver for a busier period, and you always incur those costs before you see the results of that busier period. And think about flex. We now have entirely in place the structure that we need to be able to operate and keep our customers as happy as they demonstrably are, with that NPS score up in the high in the mid-sixties. That's outstanding. So, it'll take a little while for that build-up of infrastructure to feed through to the net rent, and so on and so forth, but that's coming. But as I say, it's front-end loaded. Nick, do you want to just touch on the macroeconomy and LTV more specifically?
Yeah. I mean, I think... And Richard, it might be worth just going into that slide, and then we maybe we'll jump to 49 as well. But I think the first thing to say is that our 10%-35% is self-imposed. This is not, this is not put upon us by anybody other than ourselves, and as you've seen, we've been through that range, both above and below. I think that in the short term, all else equal, you might expect to see it rise into the low 30s, given the level of investment that we're making.
But with GBP 300 million of prospective disposals and perhaps more beyond that, I would expect absolutely that in the medium term, we'll be operating back in the 20s, in the short term, in the 30s. Do I feel uncomfortable with that? Absolutely not. We're investing for growth. We think the investment that we're making will deliver accretive returns for our shareholders. And as we make those returns, coming back to your earlier question, I think you made the point about the 18 months of inflection on earnings. I think what we're saying there is, at the moment, we've got just under 40% of the portfolio, which isn't income producing, and that isn't income producing by design, because we've been taking income out, so we can then replace it with much higher, stronger, and longer income.
But I think in the short term, a little bit of EPS downside for long-term total return upside is absolutely the right trade for us to be making. I think the final thing I would say is we're at a 29% LTV off the back of values being down, and our retail values are down nearly 50% since their peak, and offices, nearly 20%. So here, we're showing you a six-month snapshot, but if you look at it in the overall, it certainly feels as though, from a valuation perspective, the worst is behind us. We've indicated there might be a little bit more selective yield expansion, but it certainly feels as though we're getting nearer to an inflection point for valuations as well.
Great! Thanks, Nick. Where else will we go? Yes, in the front here. Thank you.
Thanks. Morning. Tom Wilson at GS. Just, just to pick up, on the earnings point, lower earnings over the next 18 months, you mentioned, are you able to just give a little bit more color on perhaps the magnitude and quantum of that, if you can? Appreciate, though, the overall sort of total return story. As well, can you touch on the, on the dividend and how we should think about that, while the earnings, run a little bit lower as well over the next 18 months? Thanks.
Yeah. I'll come back onto the magic carpet. So Richard, maybe go to slide 48. I think, earnings guidance, we said, down over the next 18 months, we'll provide a fuller update, in May, for the depth of that in FY 2025. But I would expect second half of this year will be lower than the first half of this year, and that's principally because of the higher interest rate environment that we are in, plus the level of refurb activity that's coming out. So I would expect the analysts, as you update your numbers, you'll be moving down consensus for the balance of this year and for next year.
With regards to the dividend, I think the message is, we've been here before, as we've undertaken aggressive investment into our portfolio through development and refurbishment. We've had periods, where the dividend isn't fully covered. I think, you know, last cycle it was a couple of years. I think this, this cycle, it's likely going to be, three or four rather than one or two, given we're already, halfway through that. But I think given our financial strength, with leverage as it is, sub 30%, given the annual cost of the dividend is around GBP 32 million, for the time being, you should expect to see us maintain our dividend policy, which is progressive. So when it's uncovered, or earnings are declining, we keep it flat, and when it's covered and earnings are growing, we look to lift it up. So classic progressive dividend policy.
Just in that context, Tom, it's also worth remembering that if you look at that period from 2013 through 2020, when we saw so much excess earnings relative to dividend, that was as a result of a significant investment program that you may remember us undertaking post the GFC. This time round, our investment program from organic opportunity is way bigger than it was there already, before we've made any fresh acquisitions. So Nick's point about income being taken out of our organic existing assets is very real. Right now, we're doing already a significant quantity of investment, as you know, which should, and I think that number was GBP 109, GBP 100-odd million of net new income to come from that investment alone, before we make any further acquisitions. So lots to play for.
Thank you.
Thank you, Tom. Yeah, in the middle there. Thank you.
Thanks. It's Zachary Gauge from UBS. A couple of questions on the valuations, if I may. Firstly, on the capital side, obviously numbers coming in a bit softer than British Land and Land Securities this week. Just wondered if you could touch on why your values have been written down more aggressively over the past six months, I think even more than the MSCI quarterly index. And the second, which I guess is tied into that, is on the rental side. Obviously, ERV is up 1.8%, but if you're consistently doing leasing double digits ahead of ERV, why your value rs not looking at the evidence, presumably as comparables, and moving ERVs up further, and do incentives play any part of that?
Both great questions, Zachary. Thank you. I mean, they're both also questions for our valuers, rather than, I think, for us, seeing as it's a third-party valuation that they do for us every six months. But as on a serious point, I think you've hit the nail on the head, especially on the second of those two points. You know, how is it that we are consistently beating our ERV underwrites that the valuers give us, and in this last six months, by a record at 13.4%. The long run average beat is mid-single digits.
It's 4.5%-5%, so we're obviously ahead here, and I think that what that tells you is that value rs on the way up and on the way down, by definition, are always slightly behind the curve, because they're looking for comparable evidence to derive their valuations. So when rents and yields are moving, valuers have a catch-up process, typically, to undertake, and that's what's happening, I think, in both the rental story and the capital value story. In relation to us versus the market at large, I think probably I'd point to the extent of risk that we are running in the book, in the book at the minute. So the refurbishment and repositioning risk we've just been talking about is elevated because it should be. That's what we want to be doing.
That's by design, to create improvable, improved spaces that customers will come and lease from us at ever higher rates, hopefully. And in an environment where, you know, the macro environment, people are generally risk-off, clearly, those sorts of assets have a harder time in the short term. But as Nick touched on earlier, medium to longer term, we expect that to come back, and the creation of value through that investment to be material. Exactly as to when that will be, time will tell, but it does feel like strategically, at least, it's the right thing for us to do and to do at the minute, given the supply side is as tight as it is, and the barriers to entry are as high as they are. Probably higher than we've ever seen before. Thanks, Zachary. Any more? Yes, in the front. Thank you.
Morning. Sam King from Stifel. Just one question, please, on developments, and looking specifically at New City Court, where planning hasn't gone your way. Can you just talk us through how you're thinking about the site and what the potential options from here are moving forward, please? Thanks.
Yeah. Thanks, Sam. Andy, would you like to have a go at that?
Yeah, morning, everyone. So, we were not successful on the planning appeal, which we are very disappointed about. The inspector, it came down to a heritage harm argument. We don't necessarily agree with the inspector's conclusion, but we accept it. We're moving forward. What we have done is we have engaged with Southwark. We've had a sort of a reset discussion with them, and we've talked about how we move it forward. We have appointed a new design team. We felt it's the right thing to do, is to get a new design team on board. And we've had a discussion with Southwark about, really, this is it's all been around heritage harm, so the bulk and massing is gonna be really important going forward.
We are producing some early thoughts that we are then gonna send into Southwark, and at the highest level, have a discussion so that we know as we move forward, we absolutely have Southwark lockstep with us, so when an application comes in, we already know that we've got Southwark behind us for that application. So we've probably got a sort of a six-month process through with Southwark, refining our proposals, and then we'll go into the formal pre-app process.
Thanks, Andy. And Sam, it's just worth reflecting on the fact that we have an existing holding there, which is in a fantastic location. We also have Minerva House around the corner. Between them is the cathedral. Next to them is Borough Market. The river is in front of us. I mean, as a micro- location, it's a brilliant spot for us to be in. Minerva, we have consent, and that we, you know, we may well start that next year. Marc is telling us consistently that he's confident we can pre-lease it, and we believe him. And so it's a micro- location that we would like to do more in, actually. So while we were disappointed, to Andy's point, about not getting the consent for a tall building, it has a story to it that I know we'll find value from over the next few years.
Great. Thanks.
More to come. Thank you. Yes, Marc?
Thank you. Marc Mozzi from Bank of America. Out of the nearly GBP 700 million of potential acquisition under review right now, how much do you think you would be able, normally, to conclude, or what sort of a proportion do you think it's of high interest for you?
Thanks, Marc. Good question. Rich, could we go to the assets under review? I think it's the capital activity, second from last slide. So we track bottom left. There you go. Thank you. We track the quantity of assets that we are interested in, as opposed to what's available in the market regularly. That's the track record of it over the last what is that? 10 or so years. You can see that actually today, it just short GBP 700 million. It's by no means the highest number it's been in a while. We're very choosy. We always have been. We're focusing on central locations, primarily in and around infrastructure. On average, we will have varied between 0% of that being bought at any point in time through to probably a maximum of 10%.
Right now, it's about 10, 11 assets, split pretty equally between HQ opportunities and flex opportunities. Mainly, if not entirely office, actually, I think. So, you know, it's the sort of thing you would expect us to be looking at, but we're very focused on price per ft, replacement cost, accretive, expansive IRRs, relative to what else we could do with that capital internally. So all of the discipline that we bring to that process is alive and well. And as I say, I do think that that line may not necessarily go up very much because of our choosy approach to it, but we will see more value, I think, in some of those opportunities as the year turns and we get into 2024.
Partly because of the trajectory of interest rates and risk appetite more broadly, which is exactly the point around this return of the cycle, which we think is really exciting.
Thank you. So if I understand you correctly, the 10% max historically might be higher this time, potentially?
Let's see. It's, it's really going to be fact-specific. It could be nought. It could be, it could be more, yeah, as you say.
Thank you.
Thank you, Marc. Do we have any more? Yes, one right behind you. Thank you.
Thank you. Hi, Celine, Celine from Barclays. I've got three questions for you, Toby. The first one is the potential for yield expansion, and you're also saying that opportunities to acquire are already there. And what makes you confident that value s on your trough, and why is it the right time? My second question is on the potential acquisition. You're saying GBP 5.7 billion of assets on the market. How much of these GBP 5.7 billion fit GPE's requirements? And then my third question, I think is more broad, but, it's about future returns. How do you think returns, these future returns, will compare to last returns that we've seen in the last cycle, given that rents have not dropped?
Very interesting questions. Let's, Dan, maybe you could talk to the yield expansion one, but while you're thinking of something useful to add, what I might just say is, if that GBP 5.7 billion on the market, I would refer you back to the GBP 680 million that we're reviewing. So, that, that's the more relevant number. The 5.7 is just simply giving you a scale of how much there is in the market, which has some impact, on, on yields more broadly, clearly. Dan, what are you, what are you feeling about yields and what we're seeing?
I think it's not a consistent story across the market. So if you go into the West End and you look at sort of sub-GBP 50 million lot sizes, those are generally equity purchases, a lot of private capital in the market. So assets like that, there's, you know, there's a deep demand. I think if you're going across to the City, you're looking at GBP 200 million, GBP 300 million, GBP 400 million assets, which generally leverage against them. That's a different story. Obviously, the cost of debt is extremely inflated at the moment, particularly at the riskier end of the curve. So it's very difficult for people to try and buy those assets. So we're seeing a bit of a pattern of some of those assets start to come to the market.
We had an email yesterday about one of our first loan sales, which you've seen this cycle, which I think is really indicative of the sort of direction of travel. So I think for some of those bigger, you know, sort of, more leverage-requiring assets, there's probably, there's probably a tiny bit more to come. But I think in the core markets, the West End, where 75% of our portfolio is located, I think we're in a, we're in a pretty good spot with yields, and I'd, I wouldn't see a huge downside there on yield expansion.
Yeah. I mean, there are a couple of things that we've looked at and haven't got anywhere near pricing in the core West End. I can think of a building on Hanover Square. I can think of something on Shaftesbury Avenue, you know, where there's quite punchy bidding for stuff that prospective returns of which are not sufficient, which goes to your third question around future returns. If you look at the last cycle, returns were clearly accelerated by the monetary reaction to the GFC and what happened to interest rates, which, of course, brought property yields down as fast as they did. There was also quite a lot of rental growth. We actually don't need the quantity of return that we saw last time to make an economic return for shareholders, we would argue.
What we really need to be doing is delivering a return over and above our cost of capital, blended, and the sorts of schemes that we're investing in, like French Railways House, with an unlevered IRR of 16%, for example, are demonstrably doing that. So the more of those that we can do, combined with our flex opportunity, et cetera, the better, shareholders will feel. And I think we're in a pretty good, we're in a pretty good place from that perspective. Values are not demanding, and Nick touched on that when specifically we looked at the development side with an average in... You know, the lowest is for some of the best buildings in London. We've got residual values now at £200 a sq ft. That is not far from 2008 pricing.
And so I think we've got a base from which we can grow. We know what our cost of capital is. We know what the required hurdle is. We're good at managing those risks. And so, in a way, for the first time in a while, with the return of the cycle, it's feeling very exciting. We think we've got a lot to play for, and I would hope to be able to show shareholders, you know, handsome returns over the next few years. Thanks, Celine. We've probably got time for one more. Yeah, well, maybe two. Back. Thank you. Thank you.
Hey, good morning, Neil Green from JP Morgan. Just one question, please. So you've talked about the window to deliver supply into quite a bit. And given the kind of compounding issues in the market, you've been talking about the cost of capital, the planning regime, the sustainability requirements. Have you seen that window expanding? Do you see it potentially expanding or maybe shrinking over the next few years, please?
Which specific window are you referring to, Neil?
The delivery window.
The delivery window. Goodness, I'm not sure I can be too categorical on that. I mean, I think there are some forces closing the window, and clearly planning has become more difficult, not easier. We've seen some high-profile cases in Oxford Street. On the other hand, and in our own case that Andy referred to earlier, on the other hand, we've also gained some important consents. We bought into Soho Square, which has a consent, which we do believe that we can improve because we think we can give something that the planners want in locations like that. So I guess one of the tricks of our trade is understanding deeply what it is that planners are looking for and what it is that local communities want to see us do to their benefit.
And if you get that, you know, you've got a lever that's opening the window further. If you've just arrived from wherever, and you think that planning is something you just systematically go through to gain, you're wrong. It isn't. It's complex. The barrier to entry is really high. But I think if you understand how to open the window, that window should remain open and work with local authorities and local communities, you're in a much better place. So I'm not sure I can be too more specific than that, and it's never easy, that's for sure, but nor should it be.
Thank you.
Thank you, Neil. Do we have any more? 'Cause if not, I think that's us. As you can see, we've got lots of optimism about the next few years. We feel we're in a really strong position, and if we can just bring up that last slide again, the outlook slide, please, Rich. I think this is a business with all to go for. Hopefully, we can give you some progressive news when we get to the results in May. Between now and then, as ever, we're always around for any questions you guys have, and we'd be delighted to show you some of the assets that we're developing, buying, and investing in, in between now and then. So thanks all again for coming, and see you soon.