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Questor: unperturbed by rivals or the economy, Workspace is growing fast. Hold on

London skyline featuring St Paul's Cathedral
London’s office market remains healthy enough given that some large building works have been delayed by Brexit Credit: Neil Spence /Getty Images

Questor share tip: the FTSE 250 real estate investment trust remains a good way to play the London property market

Rather than discussing his flood-stricken Meadowhall shopping centre in Sheffield or another drop in the value of his retail portfolio, you suspect that Chris Grigg, the chief executive of property giant British Land, would have preferred to steer the story to Storey alongside half-year results last week.

However, it is hard to get past an 11pc decline in retail value over the past six months – on top of an 11pc fall in the previous financial year – even if Mr Grigg tells a convincing tale about getting BL’s stores exposure down over time to about a third of the overall estate from the current 41pc.

Storey, meanwhile, is the group’s low-key drive into the market for flexible working, in particular for firms that employ 20 to 70 people. Two years after its launch, it accounts for 297,000 sq ft of space at BL’s London campus sites Broadgate, Paddington Central and Regent’s Place.

Not much in the context of one of Britain’s largest property players, but it will become more. Note that a site in Haggerston, an achingly trendy corner of east London, has been acquired as the second standalone Storey facility. It is even built in eco-friendly timber.

Such activity is a reminder that serviced offices live on even if the sector’s fallen star, WeWork, can be expected to shrink as embarrassed investor SoftBank prepares to take control of the asset. In fact, given the state of some parts of the property market, offering funky space for start-ups might provide shelter from the storm just as BL’s Meadowhall did.

Elsewhere in the City last Wednesday, Workspace too posted its interim figures. It hasn’t got a retail portfolio to worry about – just those that do straying on to its patch.

Shares in the FTSE 250 real estate investment trust have been up and down like WeWork co-founder Adam Neumann’s private jet this year. But they are still 16pc higher than where we tipped them almost two years ago as a good play on the London property market.

The growth trends are still there, from further corporate downsizing to shortening temporary projects. More broadly, the capital’s office market remains healthy enough given that some large building works were delayed by Brexit. And it will pick up faster than the rest of the country given the right election result.

Unperturbed by the competition or the macro environment, Workspace is growing fast. It owns and manages 4m sq ft of space in London – more than 10 times as much as Storey, incidentally – the product of a 30-year history that began when it was set up as a vehicle to buy some of the Greater London Council’s property portfolio.

More is being added, including a new 55,000 sq ft building in Hackney, east London, that will ready for an invasion of cool creatives in the second half of the financial year.

    Analysts at Liberum, the broker, calculate that if recently completed schemes reach 90pc occupancy they will add £10m to the half-year £130m rent roll, with projects under way potentially adding another £7m. Graham Clemett, the long-serving finance director, was confirmed as chief executive in September and is unlikely to change strategy.

    Of some concern is pricing, as rent per square foot dipped slightly in the period just ended. The company says it is prioritising higher occupancy over fees and the rent roll still managed to grow by 2.3pc. Profits also slipped because there were no gains from property disposals. A 10pc rise in the half-year dividend to 11.67p was reassuring.

    Company followers at Bank of America Merrill Lynch remain fans. They forecast that Workspace will deliver annual returns of 8pc until 2022, slightly ahead of the London office sector and split between net asset value growth and dividend yield.

    The shares are trading within a whisker of the latest net asset value, or 23.6 times forecast earnings for the full year. Readers who followed Questor’s advice should bank some profits but Workspace remains a desirable space to be. We'll stick with the stock.

    Questor says: hold 

    Ticker: WKP

    Share price at close: £10.94

    Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.

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