Good morning, everyone. Welcome to the presentation of Landsec 2024 half-year results. More importantly, welcome to 21 Moorfields, and welcome to the City of London on a Friday morning. Owning the right real estate has never been more important. Irrespective of sector, there is a clear focus from customers on the best space, and as supply of this space is limited, rents are growing. Our success in positioning Landsec for this is reflected in these positive results. Growth in like-for-like net rental income increased to 3.4%. Our return on equity for the six months to September increased to 3.9%. We are today increasing our EPS guidance for the full year, which also flows through into future years. Our active portfolio repositioning over the past year, past few years, means we continue to significantly outperform the wider market.
We expect the trends which underpin this to persist, and we're also capitalizing on the substantial accretive growth potential that we've created. We acquired a GBP 120 million stake in Bluewater at an 8.5% yield in the first half, and are confident of deploying more capital into major retail in the second half. We're on site with two highly sustainable London office developments, which, once completed and let, will deliver a yield on cost of over 7%. The progress that we've made on our residential pipeline means we now have visibility to investing over GBP 1 billion into this structural growth sector by 2030. Our strategic focus is paying off. We're well placed to grow our already attractive 5.8% income return at NTA, and to deliver the 8%-10% annual return on equity that we target over time. This positive outlook is underpinned by our strong operational performance.
We continue to lease space ahead of ERV across our portfolio, and we're driving positive reversionary potential on relettings and lease renewals, with the reversionary potential in retail in particular continuing to grow. We have also further increased occupancy, which means our London portfolio is now virtually full, while occupancy in retail is higher than it was before COVID. In terms of our future pipeline, we have started site preparations at Finchley Road, and we signed a new development agreement at Mayfield, which materially increases the residential component of that site. We also submitted an application for our residential master plan at Lewisham recently. So, combined, these three schemes offer the potential to deliver over 6,000 homes over the next decade, with a potential start on site of the first phases in just over a year's time. At the same time, the outlook for investment markets has improved.
The sharp rise in inflation and interest rates that resulted in upward pressure on property yields over the prior two years has leveled off. And we've seen a gradual increase in investor interest, with selective competition for the best assets across each of our key sectors. The pace of recovery from here may be affected to some extent by long-term rates, but the overall trajectory remains upwards. We said in May that we expected yields to stabilize and values for the best assets to return to growth as rents rise. And that's what's happened over the past six months. Overall yields for our portfolio were stable, so with continued ERV growth, values were up 0.9%. And we had an active period in terms of investment with nearly GBP 700 million of transactions, recycling capital where our ability to add further value was limited, through GBP 464 million of disposals.
We reinvested GBP 226 million in a number of our key places, principally in major retail, with further progress in retail expected in the second half. Our balance sheet remains strong, with a low net debt to EBITDA and a 34.9% loan to value. We extended our average debt maturity to 10 years. Maintaining our balance sheet strength remains a key priority, but given the attractive time in the cycle and our growing income profile, this does provide room for growth in the near term. All this is reflected in a set of positive results for the first half. EPRA earnings were at the top end of our expectations, with the reduction versus last year reflecting lower surrenders, as expected, while our focus on like-for-like income growth and cost savings offset the impact of our GBP 0.5 billion of net disposals over the prior 12 months.
As we expect the benefits of this to persist, we raise our earnings outlook and now expect EPS this year to be in line with last year, and for 2026 to be further ahead of that before any further acquisitions. Our dividend is up 2.2% in line with our guidance, and with valuation yields stabilizing, our NTA was up 1.4%. At the same time, we continue to reduce our energy intensity by two percentage points, so we remain on track to reduce this by 52% versus our 2019-20 baseline, and to do that by 2030. And 52% of our portfolio is now rated EPC A or B. That's up from 49% six months ago, and that will grow further from next year onward as the benefits of our net zero investment plan start to come through. So, on to our operational review.
Now, even though the principal use of our places differs across our business, the success of each comes back to our three competitive advantages: the high quality of our portfolio, the strength of our customer relationships, and our ability to unlock complex opportunities. And it's these factors which support our continued outperformance and the future optionality that we've created in our pipeline. And similarly, it's these factors which underpin our ability to drive further growth in income and in value over time, be that in office, retail, or our future residential-led places. In Central London, demand for the right assets in the right locations remains robust, as customers remain firmly focused on the most sustainable space, with good transport connectivity in locations that benefit from exciting amenity.
Supply of this type of space is limited, so as a result, we have seen new record rents in our markets being achieved over the past few months, showing double-digit growth from record rents set only a year ago. The strength of demand is also reflected in overall take-up. Across the last 12 months, Grade A take-up was 14% ahead of the long-term average, even though overall take-up was 6% lower. And the outlook for demand remains positive, with space under offer across the market currently some 40% ahead of the long-term average. And in terms of our customers, we've continued to see further growth in the utilization of our offices. That's up 9% year on year, although the rate of growth will naturally slow as customers begin to get close to full capacity in their space.
Meanwhile, customers are planning for more space per person than they did before the pandemic, as they incorporate more collaboration, meeting, or breakout space into their designs. All this translates into robust demand. Across the 31 leasing deals we signed over the past 12 months, we saw 12 customers take more space, whilst only 6 took less, and most of them by downsizing space that they had in locations other than ours. We had just three customers leave, and that just totaled space of 20,000 sq ft. Our portfolio is effectively full, so this positive demand continues to drive further rental growth. As a result, our leasing performance remains solid. We signed or are in solicitors' hands on GBP 16 million of lettings, on average 3% ahead of ERV, with relettings and renewals on average 7% above previous rents.
We've further increased occupancy now to 97.9%, significantly ahead of the wider London market. We've recently opened four new MYO locations, adding to our two existing ones. These are currently in lease-up and are now 45% let under offer, with a further 20% in active negotiations. All in all, our successful leasing drove 2.2% ERV growth, which is on track against our guidance of low to mid-single-digit growth for the full year. Moving to retail, we continue to see strong demand for our space. In deciding where to invest in physical stores, the main focus from brands is on how they access the largest amount of potential retail spend. The chart here on the left shows that the top 1% of all shopping destinations across the UK provide retailers with access to some 30% of all in-store retail spend across the country.
And that's effectively the same as the bottom 90% of all locations combined. And 95% of the destinations in that top 1% are major shopping centers such as Bluewater, city centers such as Cardiff and Leeds, or outlets, i.e., the major retail destinations where we have focused our strategy. And the fact that about 90% of all U.K. stores of, for example, Apple or Inditex are located just in this 1% highlights that these are the preferred destination for brands. And the chart on the right shows that for the vast majority of brands, stores in major shopping centers and key city centers are by far the most popular. This is where 76% of their stores are, and this, of course, is where our assets are.
Supported by longer dwell time and a higher footfall, sales densities in key shopping destinations such as ours are materially higher than all other retail formats. And that ultimately means they're the main focus for brands. And we continue to see this come through into positive demand for our space, as brands continue to focus on fewer, bigger, better stores. The chart on the left shows that even though several brands have been reducing their overall number of stores, the average size of their remaining stores is up by around 20%.
We're capturing the benefits of this with several major new store openings across our portfolio, such as Zara at Trinity, Sephora, Pull & Bear, and Bershka at Bluewater, and a number of major new lettings, including deals with Primark to double their space at White Rose in Leeds, JD Sports to move from the High Street in Cardiff into a brand new store in our St David's Centre. Aside from demand for new brands, the combination of existing customers wanting more space or more stores in our destinations continues to drive rental growth, as there is effectively zero new supply to meet this growing demand. This supports our continued strength in operational performance. Total retail sales were up 2.2%, and although footfall was down slightly, around half of this was due to the timing of Easter, which fell in March this year.
Despite some mixed weather in spring, conversations with our customers now suggest that outlook on trading remains very positive. All this means our occupancy is now ahead of where it was before the pandemic, at 96%, while overall lettings were 7% ahead of ERV. Importantly, rental uplifts on relettings and renewals are continuing to grow, having turned positive last year, and we expect rent reversions to grow further over time. As major retail accounts for 30% of our rental income, this will have an increasingly significant impact on earnings growth going forward. ERVs were up 1.7% over the first six months, and that's on track versus our full-year guidance of low to mid-single-digit growth, although valuers' assessments of ERV continue to trail actual leasing performance by quite some margin.
Still, for us, like-for-like income growth is the more relevant measure, and that's where we continue to show robust growth and where the outlook is positive. And all this underpins the attractive returns that we see from further investment in this sector, with day one income yields of 7%-8% and growing rents in the best locations. Values are roughly half of replacement cost, so we're not going to be seeing any new supply anytime soon. And while all assets in real estate need some level of investment over time, maintenance CapEx for the best retail destinations is low. The chart here on the right shows that we spent around GBP 80 million of CapEx on our current portfolio over the past five years. That's around GBP 15 million per annum.
Around 45% of that spend was accretive, linked directly to leasing deals that resulted in higher rents and tenants upsizing space requirements. A further one-third of that spend was defensive, related to repurposing space that was vacated by a number of major retailers that went into administration in the wake of the pandemic, such as Debenhams or Arcadia. But we're now at a point where repurposing former department store space is driving double-digit IRRs and delivering rents well ahead of anything department stores ever paid. So that element of defensive spend is firmly behind us. And that leaves us with just over 20% for normal maintenance spend on items that do not drive additional income and which have not been recharged to customers through service charge. At around GBP 4 million per year, this equates to circa 20 basis points of current asset values, which we consider to be relatively minimal.
We intend to invest more in accretive CapEx going forward, as we now have a number of projects, such as those examples on the bottom right, which are expected to deliver IRRs in the mid-teens, and with most of the space already pre-let, a low-risk yield on cost of around 10%. Even if we include all of the maintenance CapEx, our overall return on total CapEx is still expected to be around a 10% IRR. In terms of new investment in Central London, we're on site with our two schemes, one in Victoria, one in South Bank. Rents for the best space continue to grow, and recently we've seen evidence elsewhere in Victoria of rents well over the GBP 100 per sq ft record that we set with our n2 project last year.
This bodes well for 30 High, and we're also starting to see pre-let interest emerge for Timber Square, although we typically assume the majority of our leasing, these are all multi-let assets, will be happening post-completion. Whilst returns on both projects remain healthy, supply chains continue to be impacted to some extent by the effects of the spike in inflation a year or so ago. The cost of completing Timber Square has gone up by GBP 31 million, partly due to design changes that will drive additional rent, but also due to the insolvency of a subcontractor. The overall yield on cost for that project is down by circa 10 basis points over the period. Looking ahead, we have a potential future pipeline of over GBP 2 billion, virtually all of which benefits from planning consent.
This provides us with attractive optionality, so we'll continue to work on optimizing the risk-return projects of that pipeline. In addition, we've made significant progress in terms of growing our residential pipeline, as we've been refocusing our mixed-use activities onto this sector over the past 12 - 18 months. At Finchley Road in Zone 2 of Central London, we're making some small changes to our existing planning consent and have started on-site preparations. So we now expect to start development of the first phase by 2026. At Mayfield, next to Piccadilly Station in Manchester, we have recently agreed a new development strategy with our partners, which effectively provides us with control over the opportunity to deliver 1,700 homes following the delivery of the first office-led phase. This site already benefits from an outlined planning consent, and again, the first residential development could start as soon as 2026.
Lastly, after substantial local consultation a few weeks ago, we submitted our master plan for the delivery of 2,800 homes in Lewisham, Southeast London. Between those three projects, we now have clear visibility on a pipeline of over 6,000 homes in vibrant, well-connected locations, all of which can be delivered in smaller, discreet phases. That means that CapEx commitments will be managed and phased, yet overall provides us with the potential to invest over GBP 1 billion by 2030 and GBP 3 billion over the next decade into this structurally supported growth sector at attractive, low double-digit, ungeared IRRs. Which brings me to capital allocation and our views on risks and returns. As I mentioned in May, the marked increase in cost of capital has clearly impacted the prospective returns of the investment opportunities available to us.
Major retail still offers the best risk-adjusted returns in our markets, as income returns remain high and rents are demonstrably growing. We capitalized on this with the acquisition of a further GBP 120 million stake in Bluewater in the first half, and are confident of deploying more capital in the second half. The outlook for prime London office assets is also more attractive than it was two or three years ago, as rents for the best space continue to grow and yields look attractive in a historic context, albeit lower than in major retail. In terms of new office development, growing rents for prime space have to compensate for an increase in build costs and exit yields, and whilst development returns still offer a premium against standing assets, there is, of course, higher risk involved, requiring careful consideration.
There is clear support from the new government to unlock urban residential development, and while development returns are not dissimilar to offices, the risk profile here is arguably more attractive. Now, the first start of any of our residential schemes will be in early 2026, so given the attractive returns in retail at present, this will be our main focus in terms of investment in the short term. I'll now hand over to Vanessa, who'll talk you through our financial results.
Thank you, Mark. Good morning. Our high-quality portfolio continues to attract strong customer demand, which is reflected in our positive financial performance over the first half. Let me take you through the headlines. Gross rental income reduced by GBP 21 million to GPB 302 million, but this was driven solely by our non-core asset sales and a reduction in surrender premiums, as like-for-like income was up GPB 7 million.
I'll explain this in more detail in a moment. Our EPRA earnings per share were at the top end of expectations at GBP 0.25, driven by stronger-than-expected growth in like-for-like net rental income and further cost efficiencies. As momentum remains positive, we are raising our EPS outlook for the full year, and our interim dividend is up 2.2% in line with our guidance. With continued growth in ERVs and a stabilization in yields, our portfolio valuation was up slightly, and NTA per share rose 1.4%, which means we delivered a return on equity over the first half of 3.9%. Moreover, our balance sheet remained strong with LTV of 34.9% and net debt to EBITDA of 7.4 times. So turning to EPRA earnings in more detail, overall, we have been a net seller of GBP 500 million of assets over the past year, which reduced net rental income by GBP 20 million.
After a number of years of elevated surrender premiums due to customers rightsizing their space requirements, we expected surrenders this year to reduce, and in the first half, these were down GBP 13 million to GBP 4 million. The impact of disposals and lower surrenders was partly offset by our strong leasing, which drove GBP 7 million growth in like-for-like income. The recovery of bad debts materially improved this year, as we have recovered debts that were previously provided for across assets that used to be managed externally, and we now manage these in-house. In terms of earnings guidance, we expect this additional debt recovery to offset the fact that we now expect surrenders for the full year to be lower than we previously guided for. Our continued focus on improving efficiency reduced administrative expenses by 10%.
We expect admin expenses for the full year to be comfortably below last year and to reduce further in 2026, but I'll come back to this later. Overall, our EPRA Cost Ratio reduced from 23% to 20.8%. While this will increase very slightly in the second half due to the seasonality, we expect this to remain in the low 20s. Finance costs increased by GBP 3 million, so all of this means that EPRA earnings are at the top end of expectations at GBP 186 million. In terms of like-for-like income, we delivered an increase in growth to 3.4%. We have captured positive uplifts on re-lettings and renewals, and we've increased occupancy by 80 basis points over the year.
This was consistent across both key parts of our portfolio, with like-for-like income in London up 5.5% due to the positive growth in offices and a strong performance from Piccadilly Lights, whilst like-for-like income in retail was up 3.1%. Back in May, we said that we expected like-for-like income growth for this year to be similar to last year's 2.8%, but given our strong performance to date, we now expect this to be closer to 4%. Whilst our reported ERVs do not reflect the full upside potential, it is clear that we have now moved to positive reversions, especially in retail. This underpins our future income growth potential, especially as rental values continue to grow.
Turning to our portfolio valuation, after two years of yield expansion, valuation yields stabilized over the first half, and rental values are up a further 2.1%, driven by successful leasing, which means that our overall portfolio value was up 0.9%. Our Central London portfolio is up 0.8%, yields were virtually stable, and ERVs were up 2.2%, which is on track versus our guidance of low to mid single-digit growth for the full year. ERV growth was higher in the city this time at 5.3%, reflecting a number of asset management gains. Our West End assets remain virtually full, and market rents have continued to reach new records recently, which bodes well for the upside in our portfolio.
The valuation of our major retail assets was up 2.8%, reflecting 17 basis points reduction in yields and 1.7% increase in ERVs, again on track versus our guidance of low to mid single-digit growth for the full year. Given the high income yield and the fact that major retail assets of our quality require little maintenance CapEx, total returns remain very attractive, at 6.8% over the first six months. Our mixed-use assets were down 3.7% in value, driven by further yield softening in MediaCity, as regional offices remain behind London in terms of improving investor sentiment. We also saw some softening in the existing use values in Lewisham, Finchley Road, and Glasgow.
As Mark explained earlier, the attraction of Lewisham and Finchley Road sits in the significant residential potential, while in Glasgow we are already seeing strong interest from leading retailers in our plans to reposition the existing centre. As we progress with these plans, we expect valuations for these assets to turn a corner in the next 12 months or so. And following the sale of hotels, our subscale assets are only 8% of our overall portfolio, and values are up 2%. Looking forward, we have started to see investment demand pick up for assets which offer rental growth, as yields look attractive in real terms. And our outlook for ERV growth remains unchanged, which supports our outlook for property values. And this brings me on to our total return on equity, which increased to 3.9% for the first six months.
Our income return for the half year was 2.9%, while ERV growth delivered a capital return of 1.7%. This was broadly similar to previous periods, but over the last two years, all of this has been offset by adverse yield movements. With yields stabilizing over the first half, this chart shows that we are now well placed to deliver our target return on equity of 8%-10% per annum, building on our growing income return, which is 5.8% on an annualized basis. At the same time, our capital base remains strong. Our loan-to-value, net debt to EBITDA, and interest cover are all effectively the same as they were in March. Acquisitions and CapEx have effectively offset the proceeds from disposals since then, partly as the sale of our hotel portfolio included a deferred payment of GBP 50 million, on which we receive a 6% coupon.
Adjusting for that, our LTV would be 50 basis points lower. We have also strengthened our financial position with the issue of a GBP 350 million 10-year bond at a 4.6% coupon, and we refinanced the GBP 2.25 billion of revolving credit facilities at a low average margin of 65 basis points. As a result, we have no need to refinance any debt until 2027, and our average debt maturity is long at 10 years. So given where we are in the cycle, we would be comfortable to see LTV increase slightly towards the high 30s in the short term for the right acquisition opportunities. But we intend to remain within our 25%-40% target range, and any increase from here would only be temporary, as we would manage LTV back to the current levels in time.
Despite a subdued activity level within the wider investment markets, we have had an active year so far with close to GBP 700 million of transactions. We sold 5% of our portfolio of the first six months, broadly in line with book value, including the sale of our hotel portfolio. We invested GBP 140 million of this into major retail destinations at an average 8% income yield. We expect this to deliver double-digit IRRs, and we are confident in deploying further capital into retail at accretive returns in the second half. Since the half year, we have also taken full control of MediaCity for a net consideration of GBP 84 million. This involved the surrender of the wrapper leases, but adjusting for the value of this, the transaction was broadly in line with book value.
And the acquisition is earnings neutral in the short term, but importantly, it provides us with the ability to implement our plans for the estate, including the future residential potential on the second phase. So in summary, we have had a positive start to the year and now expect like-for-like income growth for this year to be closer to 4%. And now more of this like-for-like income growth will translate to earnings growth due to our successful delivery of sustainable operating efficiencies, which has been our consistent focus over the past few years. You will recall that we have previously talked about how our investments into data and technology would improve our efficiency, so I'm pleased to say that we now see the benefits of this coming through.
Following the 10% reduction in overhead costs in the first half, we are on track to deliver further savings into the next financial year, as the top right chart shows. Alongside further efficiency improvements, this means that more of our like-for-like income growth will flow through to earnings. Despite GBP 500 million of net disposals over the past year, the combination of higher like-for-like growth and lower costs means that we now expect our EPS for the full year to be in line with last year's GBP 0.501. This comfortably supports our aim to grow our dividend by a low single-digit %, and we expect this improvement to continue into future years, with EPS for 2026 expected to be ahead of 2025. This increase in guidance is before any potential benefit of future acquisitions.
Overall, we are well placed to deliver attractive return on equity over time. With that, I'll now hand back to Mark.
Thank you, Vanessa. I'll now wrap up with our view on the current environment and what you can expect from us in the year ahead before we then move to Q&A. Our decisive portfolio repositioning over the past few years means that Landsec is well placed, and it has never been more important to own the right real estate. Whilst geopolitical risks have increased, the general election over the summer here created an element of political stability, which has eluded the U.K. for most of the past decade. We are, of course, alive to the risk that higher taxes could impact business sentiment, but we're not seeing any signs of this affecting occupational demand at this point.
Our reversionary potential is growing as customer demand for the best space remains robust, and we still expect ERVs to grow by a low- to mid-single-digit % across our portfolio. Meanwhile, investment market activity has started to pick up as yields have stabilized. Values for the best assets have returned to modest growth, supported by the good availability of credit. We're mindful that changes in long-term interest rates could impact the pace at which momentum continues to build from here, but we're confident that the overall direction of travel is upward, and we've created significant optionality, especially in residential, and our balance sheet remains strong, creating capacity to invest at an attractive point in the cycle. This means we have created clear growth potential, both in terms of continued like-for-like income growth as well as in terms of new investment.
As such, our strategic focus is delivering, and we expect to continue seeing the benefits of this over the next few years. So to summarize, we continue to build on the positive momentum in executing our strategy. We now expect like-for-like income growth to be higher than we initially envisioned, and our success in improving our operational efficiencies means more of this like-for-like growth drops through to EPS growth. Having sold 5% of our portfolio in the first half of the year, we intend to reinvest further capital in growing our major retail platform in the second half. Major retail now accounts for 30% of group rental income with reversion building. We'll continue to progress the growing residential opportunity in our pipeline while we look to further optimize our overall return on capital employed and to focus our activities.
We expect our attractive 5.8% income return at NTA to grow further as like-for-like growth and efficiencies drive EPS growth. So with continued rental growth and yields stabilizing, we're well placed to deliver attractive returns on equity. And with that, I will now open for Q&A. As usual, what I'll do is take questions here in the auditorium first, before then going to those joining on the conference facility, and then lastly on the webcast. We've got handheld roving mics, so if I could ask you to raise your hand if you have a question and just wait for a microphone, and I'll start with Paul May down here in the front row.
Thank you very much. It's Paul from Barclays. Just a couple of questions from me.
You mentioned a few times your strong balance sheet. I think in a European context in particular, but versus some US peers, you're still seen as over-levered based on net debt to EBITDA. Furthermore, given relatively higher marginal cost of debt, isn't a lower net debt to EBITDA metric more appropriate moving forward? Just wondering what your thoughts were on that. I think linked to that, you previously mentioned equity as an option to fund expansion, provided it's EPS accretive. I think that will be the case. I just wondered if that's still your thought process. And then second question, how do you manage to plan, or how do you manage the impact on FY2027, FY2028 earnings? I appreciate that's a few years hence from the GBP 21 million of rental income lost on Queen Anne's Mansions and the refinancing of roughly GBP 500 million of debt at higher marginal financing rates?
Thank you.
Great. Thank you, Paul. I'll ask Vanessa to comment first on how we think about leverage capacity, which is something, of course, we've, I think, managed very effectively as a business over a period of very substantial value correction. I'll perhaps then pick up on equity, and we'll between us try to answer your question on FY2028 as well.
Yeah, so Paul, when I'm, I think I've mentioned a couple of times before anyway, when we look at our leverage position, we're focused on our loan-to-value ratio, but also, I would say more importantly to some degree, the net debt to EBITDA ratio and interest cover. And we're looking to manage our net debt to EBITDA below eight times, so we're currently around 7.4 x. So any investments that we make going forward, it's important that those investments align to our prioritization to drive income growth.
In order, and therefore that we look at it through that lens, which means that we will manage our position, our net debt to EBITDA position below eight times. We also then look at managing our LTV as we stated in our target range, but we would look to primarily be within the range and the remit that we are today, which is just under 35% LTV. I think therefore what we, the way in which we manage that is also through our ability to recycle capital effectively. As we've demonstrated over recent years, we've got good liquidity in parts of our portfolio, and we're active then at recycling in order to invest in good quality, higher income generating assets.
I think it's just worth looking at the track record of the business a little bit in how we've been effective in managing all three of those leverage-related metrics, maintaining a high credit rating, benefiting from low cost of debt. So Vanessa mentioned in the presentation issuing a GBP 350 million bond in a period at a 4.6 coupon, which looks pretty attractive, refinancing GBP 2.25 billion RCF, which is extended debt maturity at a 65 basis point margin. I think shows that the credit quality of Landsec as a business is still very much understood, but having a bulletproof balance sheet is something that underpins all of our strategy and is not something we would ever, ever wish to risk. You asked a question on equity issuance, and obviously there's been a little bit of activity in the sector since we were last reporting.
And I guess what's been interesting about that is showing a willingness from the market to support equity issuance that delivers EPS growth, even though that may come at the expense of a little bit of NTA dilution. I think our view remains, as I think I said six months ago, is that for the right assets, and to me it would have to be the right assets, would have to be genuinely scarce real estate, the sort of things that I think REITs should be owning for the long term that can support long-term earnings growth. For the right assets, that's something we would absolutely consider, but it would have to be earnings accretive and it would have to be a genuinely scarce opportunity. With respect to your last question, I'm always impressed when analysts are moving beyond 2024, in fact.
So, 2028 is a very rare question, but I think the underlying, we've got one particular asset with a very significant negative reversion coming in 2028 when the lease to the Ministry of Justice at Queen Anne's Mansions reaches expiry. We're working through plans on that scheme at the moment for alternative uses, and I think making some good early progress there. In the meantime, I think the rest of the portfolio with the growing reversion, I think will be pretty meaningful by that period of time.
In terms of refinancing debt, of course it remains to see where rates are at that point, but I think what Vanessa and our treasury team have shown pretty effectively over the last couple of years is an ability to access the markets quickly when rates are attractive, and I would expect us to continue doing that and to continue to outperform the sector average in terms of the cost of debt that we're able to secure. Thank you, Paul. Just behind Jonathan, questions there. Good morning.
Good morning, Jonathan Kelly at Goldman Sachs. Just one quick question on your like-for-like rental growth. Obviously, it's moving up towards a 4% mark. One of the drivers of that is increasing occupancy, obviously. Are you able to continue to drive occupancy up? It's obviously quite high already, but what's the headroom here and what does this mean for like-for-like range growth going forward?
Yeah, I mean, it's obviously getting occupancy above 100% is going to be tricky. So you're right, there's limited. I think there's more, there's still headroom within the retail portfolio, but I think that the two sort of go hand in hand that once you've got higher occupancy and lower vacancy in the portfolio, you are inevitably creating more pricing tension. And I think that's particularly relevant in the retail portfolio. We've got numerous examples over the past six months and we will in the next six to 12 months where we have got multiple brands chasing the same space. And ultimately that's what's going to drive growth is where you've got multiple bids for the same space.
Obviously the 7% reversion on the relettings is an average number. Can you help us understand perhaps how this reversion is moving for the best space that you have and is it moving into well into double-digit territory?
I mean, I think that the range, because in the past we've had some quite broad ranges on leasing to ERVs, that range is now starting to narrow, so I think we're getting a better read of the overall market. I think where demand has been strongest over the last 12 months, probably will remain strongest for the next 12 months is on the larger units, the larger MSUs, because you've got brands that want to, in the case of Primark in White Rose, a doubling space. We're very close to signing a deal with another retailer that will see them triple their space at one of our centers.
That's where we're seeing the most of the rental tension. Of course, they reset minus 35% peak to trough and have been at that level until the last 12 or so months that things have started to grow. My own view is for those dominant assets that are in that top 1%, retailers want to be there. They've also shut a lot of other stores elsewhere. So whilst our rents are down 35%, their rent bill is down significantly more than that. Online channels have become significantly more expensive to service. So you're looking at these stores now serving the online channel as well as offline. I think all of that points to significant sustained demand for that space, and that should be translating into upward rental growth on the basis that no one's building any more of those things.
So whether that's double digit or not will remain to be seen, but there's a firmly upward pressure on those rents that I expect to persist for some time.
Thank you.
Thanks, Jonathan. Perhaps we'll just go one step back to Zach's second, then we'll come over to Rob over here just to save the distance and walking with the microphone.
Thanks. Zachary Gauge from UBS, a couple of questions from me. Firstly, on the pipeline, if that's okay, I think you've obviously tilted the mixed-use scheme towards residential, which makes sense. In London, you probably don't have as much flexibility and you're quite exposed to the South Bank submarket. You mentioned you're probably not expecting to do pre-leases on Timber Square. Could you give an indication of how long post-completion you would expect to see that building filling up?
And then, as sort of a follow-on for future pipeline, with the returns you showed, it does look that major retail is probably the best risk-adjusted returns. On that basis, should we actually expect more delayed start dates on the office schemes if you sort of divert more of your free capital into shopping centers? And the second question, some really interesting data that you showed on the percentage of spend in shopping destinations. I was just wondering if you could reconcile that with the strong performance that we've seen in retail parks, which, if I'm not mistaken, was your top performing sector over the past six months. Obviously, retail parks are not typically located in prime city center locations. So how do you sort of see the balance between those two formats given the data that you've shown in this chart?
Sure. Thanks. Thank you, Zach.
So to development leasing, first of all, so we've got two projects on site, 30 High in Victoria and then Timber Square on the South Bank, both slated for completion towards the end of 2025, 30 High first. They're both multi-let projects, or designed and intended strategically to be multi-let, so letting individual floors or small numbers of floors. And in those cases, that tends to lend itself to occupiers wanting to see and understand the space and how it's going to work, and they tend to have shorter periods of time required for fit-out, for example. So unlike 21 Moorfields here, which is a very significant length of fit-out process, you're being able to move more quickly. So I'd expect to see that start to translate into demand, leasing, pre-leasing being signed at both of those assets for probably the middle part of next year.
And we would always assume that we would be leased, fully leased across an asset within 12 months of PC. If I look at our last development cycle, we fully leased n2 and Lucent within two to three months of PC. We were a bit slower at The Forge down in South Bank. Ultimately, those things net out to a net, quite significant outperformance on that. But multi-let, I think will always take a little bit longer. 12 months is the post-PC, our sort of typical assumption. With respect to capital allocation, as we said, risk-adjusted returns in major retail look most attractive. We've signalled an expectation of investing more before the end of this financial year for that reason. We then, in the background and show more detail of it today, have built significant optionality on both the London office pipeline and a residential-led pipeline.
Now, the CapEx across those two in totality, although they're not all available to go at the same time, is probably GBP 4 billion or something. So we are clearly going to have to make decisions on where we choose to allocate capital. I think those are decisions for the next financial year. We'll want to see the current development programme begin to be de-risked across 2025. That will then give us the confidence to look at how we want to recycle capital into the next phase of development. And we've got a very attractive pipeline across both of those sectors to choose from. It'll come down to risk-adjusted return scheme by scheme as we assess those during the course of the next financial year.
And then with respect to retail parks and shopping centers, I think as I've always sort of understood or been aware of the narrative of shopping centers versus retail parks as different retail formats, what we've tried to show today is they are serving two completely different purposes. So it's not that we think shopping centers are better than retail parks or indeed that we have any view vice versa. It's more where do we see our competitive advantage for the long term. We had and still have, I think, by far the strongest diversified major retail portfolio across the U.K. We have strong relationships with up to 600 brands that lease space across those centers. We're seeing them benefit from the upsizing of stores. We're seeing it benefit from footfall and a desire for a greater experience besides the retail experience from visitors.
All of those are things that are specific to centers, so it's more of an experience-led approach. Retail parks are much more convenience-led. So they're smaller lot sizes, their cap rates have come in more quickly, I think reflecting the greater liquidity in that space. But to me, what should we as a REIT be owning? We should be owning assets that themselves can underpin long-term consistent growth in rents. As I look at our portfolio and our shopping centers in particular, I see a portfolio of assets that I believe for the long term will be delivering consistent growth in net rental income from here. Thank you, Zach. Rob, you might be coming to you.
Yeah, thanks very much. Rob Jones, BNP Paribas. Three questions, two on Timber Square, one just on the point you were making about retail parks, not versus shopping centers.
The first one on Timber Square, just going following on from one of Zach's questions. I appreciate your commentary around not pre-letting that, and indeed your confidence in being able to lease that space, say, within 12 months of PC. But why not undertake some pre-lets? And do you think there's a notable difference in terms of rental tone delta that you might be able to achieve leasing post-completion versus prior to completion? And the second one on Timber Square, I think you said cost increases, not overruns, obviously given the change in scope, GBP 31 million in total, some of that subcontractor administration. Maybe you could just touch on the financial impact of that subcontractor administration and maybe any incremental lessons learned to further mitigate any risk of that kind of thing happening going forwards.
And then the other one you were saying kind of shopping center long-term ability to drive both rental growth and ultimately attractive return on capital. Does that mean that you don't see retail parks being able to deliver that?
Sure. Okay, thank you. So leasing in Timber Square, sort of first of all, so the feature of these types of assets, and it applies probably even more so to 30 High, is that the size of floor plates, the size. These are intended to be multi-let, and it tends to be that the occupiers that are looking for that space have shorter lead times. And it also tends to be that we're going to get stronger demand and ultimately better pricing when they've got a sense of what the space actually looks like.
That's particularly the reception areas, the arrival experience, all of those things that are sort of additive to just the specific demise that they're leasing. I was down at Timber Square last, about a month ago. You're already now starting to get a sense of what the lobby and arrival experience in terms of scale is going to be like. We don't want to go too quickly and find ourselves being encouraged to look at a softer rent to underwrite demand because we have the strength of balance sheet to be able to wait for better pricing. We are making presentations, beginning to make presentations now to people that have got requirements out there. That tends to lead to a six or so month sort of process of people going through it.
So that's partly what I'm saying when I would say from middle of next year, we would expect to start to see some movement on leasing. But it's a feature of the multi-let rather than trying to do single-let headquarters buildings. You recall that we've effectively exited all of our single-let assets, including the one that we're sat in this morning, sort of over the last few years. On costs on Timber Square, so GBP 31 million increase in costs reflected in the period. Around GBP 11 million of that 31 was down to changes in specification, in particular introducing a club room into a second building, which will be reflected in better rents that we achieve and a couple of other minor changes around the edges. But around GBP 20 million of that was down to cost increases largely a result of a subcontractor failure.
So we procured that, we chose 18 months or so ago to procure that building on a construction management basis where we let multiple individual packages rather than the single D&B contract. It's the only project where we have done that. And in looking at our pipeline going forward, we have no plans to procure. But what that meant was that we were taking, whilst we had good price certainty, we were taking the risk of subcontractor failure rather than the contractor standing between us and that failure. It was an M&E contractor that failed. So it's a pretty important package in multiple facets of that across the scheme. And of course, if you're then back out retendering an M&E project in a scheme that you're already building, you're inevitably going to see some opportunism from other subcontractors within the market. So I guess there are certainly lessons there.
I mean, I think there is a reasonable amount of sort of stress out there in the supply chain at the moment. It's something we're very cognizant of and very careful to manage, and we know recently we saw the ISG failure as well. So we know there's stress out in the supply chain. It's something we manage very, very carefully. In this case, it's hit us. We are 95% let across that package now and have no concerns as things stand about the remainder of the supply chain. And then shopping centers long term, I think my comment is on the ability of shopping centers to deliver rental growth for the long term based on delivering experience and being able to bring new brand concepts in, greater hospitality and leisure offer as part of that, rather than a view that retail parks don't deliver that.
So I think I'd probably rather focus on the positives of the assets that we own and are keen to invest in. But they are truly, truly unique assets and no one is building any more of them. Thank you. Romney in the front row, and then we'll come to Max also in the front row.
Hi, Romney, Aberdeen. I think what I'm hearing pushback on me on this is if you can buy really good assets with those ungeared IRRs, I'm thinking major retail, then obviously it makes sense to buy it, then build it. And that applies generally across your sort of portfolio. And you've stressed the optionality again, as you've done in previous results in your major pipeline.
I guess what I'm wondering is if you can deploy capital that's a 10% plus ungeared IRRs in major retail, then any rules of thumb of what we need to see where you would say, actually, I do want to commit on developments. So what I'm getting at here is if 7% plus sort of yields on cost isn't good enough, sort of what does it need to be either the yield on cost going up or I don't know, a spread over your revaluation yield or over the risk-free, anything like that, where you could say where we can say, actually, it makes sense for Landsec to get back to being a sort of a developer as well. And the second question is sort of joint ventures question seems to have gone very quiet. Let's see, something you've spoken about in the past. Thank you.
Yeah, so with respect to allocating capital and development, I think the important thing for us to do is to be very cognizant of the risks that are involved within that. Clearly, there are much lower risks in buying major retail. There aren't that many of those assets out there, so there's going to be a finite amount of opportunity to invest in major retail. There will be opportunities to invest through CapEx in enhancing and improving and extending the schemes. And I think those offer pretty attractive double-digit IRRs, mid-teens IRRs, as I indicated during the presentation. So that still at this point feels as though that's going to be most attractive. Of course, at some point, that would suggest that the cap rates that these assets are currently held at or available at are going to start to come in.
So there's a finite period of time that you'll be able to deploy capital there. Hence, why we're prioritising that as a window of opportunity. But then for development risk, we should be looking for a meaningful premium to what we can get from buying income. So if you're looking at an ungeared IRR for holding London office assets at the moment, it's probably, let's say that's in the 7%-8% range based on where cap rates are today. I think you'd want to be looking at an 11%-12% IRR to give you an adequate delta. Is that achievable in the market at the moment?
I think it is if you work hard, but I think you do have to believe in an element of growth, whether you want to price that growth in form of rent or whether you want to put it in terms of cap rate compression. And that means it is to us, I think, a pretty finely balanced decision. And we're not going to rashly go after developments and back ourselves to deliver epic rental growth if we can go and buy very attractive income that is already growing in sectors that we have real expertise in. And then third-party capital or joint ventures, I've mentioned in respect of the pipeline, you have GBP 4 billion of CapEx. For the avoidance of doubt, we don't have GBP 4 billion of capacity to take those projects forward ourselves.
So at some point in the future, I would think that that is an opportunity to work with private capital. As things stand, we've got two fully funded developments on our own balance sheet that will complete next year. We've been in an environment where capital raising for anyone has been something of a challenge. So I don't think 2024 has been the time to try and work with private capital going forward. I think that could be an opportunity. It's not something we're relying on, but I think it is something that could offer upside. Thank you. I'm just going to come. You covered Max? No. We've answered Max's question. We're back to Paul. I'm not sure if you're allowed to have a second go, but let's see what the question is. I reserve the right to ignore it if I don't like it.
Just a very quick one, just following on from your answer there. I mean, private capital is probably far more expensive than your own capital. So why are you still looking to use that? Thank you.
I'd say I think it's an option. It's not something we're committing to. And I think any business should be looking at the range of options that it has to capitalize the opportunities in front of it, whether that's private or in balance sheet, new public equity. We will always look at those sources. But having more sources of capital available, I think, is better than fewer. So that's how we would think about it. I don't see any further questions within the room. So I'm going to open up to the conference call and see if there are any calls online.
I've got some ones on a screen here, but I think they're coming from the webcast rather than the conference call, so let me go to the conference call first for any questions beyond what we've already had within the auditorium.
The first question is from Ventsi Iliev from Kempen. Please go ahead.
Hi, good morning. Thank you for the presentation and for taking my questions. Two. First one on major retail, you're fairly confident that you can deploy more capital. But at the same time, I think there is good evidence that valuations are at a turning point. So the question is, why would any owner sell now? Or is it just you that you're more willing to buy a tighter yield? And second, I noticed that the ERV uplift for city offices is very strong. Could you provide more color there and just in general what your view is on city offices versus Victoria? Thanks.
Thank you, Venci. So yeah, with respect to major retail, there are certainly owners of assets in that top 1% that we've talked about on that chart that are not sellers, that are long-term holders. But there are a number of these assets that we know are held in capital structures, many of which are in the hands of debt-driven investors that have ended up owning assets. So I think that's ultimately where the potential for sale comes from, rather than people having a fundamentally different view of the sector. I think it's a different type of capital.
But it is, of course, a sector that requires quite significant operational expertise, relationships with brands, ability to understand and underwrite investment opportunities from an asset management standpoint beyond simply acquiring the asset upfront. So I think that means there will be enough people out there that will be interested in selling at the right time and obviously at the right price. And we've indicated a confidence in getting the capital deployed that we want to. But what we're not suggesting is that we're the only people out there who think these are great assets. I think we're seeing more and more people thinking, actually, this is a pretty interesting sector, which is why I mentioned earlier that if the rents are right and the rents are growing and the CapEx is 20 basis points, then the cap rate should not be where the cap rate is.
And I think more people are starting to appreciate that. And then ERVs in the city, I think ultimately what tends to happen within valuations across a portfolio is that ERV growth tends to be a read across from leasing activity within the specific assets within the specific portfolio. So what you've seen in the city is just evidence of deals that we've done in a couple of our assets that have given clear evidence for other deals coming forward within those assets, rather than people looking at market evidence and being prepared to market that across all assets in that particular geography. So I think that's one of the reasons you might see elsewhere leasing to ERV relative to ERV growth showing a bit of a lag difference. I think there is a desire to see actual evidence in those specific assets to properly reflect that ERV growth.
We've seen that in the city because in the West End, for example, we've effectively been full at Victoria for some time. We haven't had the opportunity to demonstrate where that price point should move to. We will, over the next 12 or so months, have some opportunity to move those on, I think, reasonably significantly as well. Thank you. Are there any other questions on the conference call? Otherwise, I have a couple from the webcast that we'll cover.
The next question is from Adam Shapton from Green Street. Please go ahead.
Good morning. Just a couple from me. First, probably quite simple, just on portfolio weighting. So you guided in the recent past to targeting 55%-60% for Central London, just on the basis of the sort of capital allocation preference commentary today.
Is that still the case, or are you comfortable with Central London moving lower, in particular London office moving lower within that portfolio weightings? And then the second question is just back to the issuing equity question. I just wanted to clarify the message that you want us to take away on that and to Paul's first question. I think you said that you would only envisage issuing equity if it was associated with a particular acquisition and only if that was exceptional, presumably in terms of respective IRR or earnings accretion, whatever it might be. I just wanted to make sure that we take away exactly the message you want us to on that.
Thank you, Adam.
So with the first question on capital allocation and target weightings, I think at the moment what we have much clearer visibility of is a pipeline of projects that we can choose to commit capital to based on the assessment of returns and risk next year. I think that will take priority over sort of slavishly trying to get to one particular portfolio weighting or another. So I think we'll be in a position to provide a clearer update on that once we are further through with the current development projects, once we've concluded the investment plans that we've indicated in major retail, to then say, well, how are we thinking about capital allocation forward from there? So I think that's something we'll be able to answer for you in the next financial year. And then just to reiterate, and thank you for coming back on the question on equity.
So I think that's the first message that's very important to take away is we've been clear. We have balance sheet capacity today, and we intend to deploy that capacity first. I think the second thing I would say is we have good liquidity in parts of the portfolio, particularly non-core parts of the portfolio. And we would always prioritize releasing capital from non-core assets over adding any new capital in. And then the third is, were we to consider raising equity, it would have to be for a genuinely scarce asset. It would have to be EPS accretive. And we would look at the NTA impact of anything like that, but would not be averse to doing something that was mildly dilutive as long as it was for the scarce assets and it was EPS accretive.
But those first two points, thank you for giving me the chance to raise those again, that we have no need or plan at this point because of our existing balance sheet capacity. And beyond that, we have liquidity elsewhere in the portfolio that we would take advantage of first.
Okay, very clear. Thank you.
Thank you. And any further questions on the conference call?
This time, there are no further questions from the call.
Perfect. Well, thank you very much. So I just two brief questions to pick up from the webcast. So firstly, from Neil at JP Morgan, given the constructive view on residential development, are you looking at acquisitions in this sector too, whether that be land or standing assets alongside major retail? So to answer that, our priority very clearly in the near term, certainly on the six-month view, is major retail and only major retail.
In terms of what we choose to do in the residential space, now that we have got a much greater clarity on our own pipeline, that is something that we will provide a clear review on. I'll be able to provide a clear review on in the next financial year. So not a question for us to be answering now, but something that we will certainly be considering as those projects in the pipeline come forward. And then from Mike at Jefferies, is the budget to green the entire portfolio to 100% EPC A to B still GBP 135 million? Well, we announced that back, I think, in late 2021. We've made good progress on design and also with the first initial projects. We're still working within that overall GPB 135 million number. We're in good shape. I think we will start on four, if not five projects with this year.
We've procured those, and we've procured those within the overall budget that we allocated ourselves originally. So we've been able to absorb inflation within that part of the market and firmly on track to be 100% EPC A or B by 2030 as a result of that plan. I believe, I hope we've dealt with all of the questions that have come up across the various different channels. So it just leaves me to thank you all for taking the time either in person or online to join us today and wish you a great remainder of your Friday. Thank you.