Listed London developer GPE said the doom-mongers about the London office market had "clearly been proved wrong" this morning as it upgraded its rental growth projections and said it was ready to buy again in a recovering market.

Its results for the six months ended 30 September 2023 continued to see value falls caused by the higher interest rates and the wider economic environment, but chief executive Toby Courtauld told CoStar News that was creating opportunities: "There are a couple of key stories. The supply-demand dynamic is on our side in central London and we are leasing really well. We are thumping the estimated rental values our valuers are telling us we should be getting by a whopping level. The doom-mongers and naysayers about the death of the office have clearly been proven wrong in relation to central London. London feels buzzy. We have seen 250 million journeys already on the Elizabeth line in the year since it has been open. And it is amazing how little we talk to our customers about work from home."

The other theme of the results Courtauld said was continued value falls,g as GPE said the portfolio is now valued at £2.3 billion, slipping 10.3% in the period. That splits to minus 9.6% offices including flex at minus 7.1%, and minus 12.4% retail. Rental values were up by 1.8%, 1.9% offices for with flex 1.7%, and 1.2% retail

GPE said it was seeing strong leasing as tenants are demanding what it terms "best, sustainable spaces" and that has led to a period of lettings at a record 13.4% ahead of estimated rental value. As such it is upgrading rental value growth guidance to 2.5% to 5.0%, and 3.0% to 8.0% for prime office.

EPRA earnings came in at £11.8 million, up 3.5% on 2022. GPE posted an International Financial Reporting Standards loss after tax of £253.4 million and a loss per share of 100.1 pence

Courtauld described the value falls as in some ways a silver lining.

"The financial backdrop, the macro story of the last quarter around inflation and interest rates, has had a definite impact on our figures. It has a silver lining though. We are seeing the re-emergence of the cycle which means we are buying again, and we thoroughly expect we will continue to do this."

In terms of where GPE will look to buy Courtauld said: "We have had a preference for the West End because supply is tight and barriers to entry are pretty much as high as anywhere on the planet. We do from time to time enjoy investing in Midtown, and in the Southbank and the City. But our focus at present is very central and we are not likely to do fringe City or fringe commercial locations at all. The bifurcation in the market between prime and the rest is if anything bringing things back into the middle of town. That is where the best pressure on rents is."

The period saw 37 new leases and renewals sign generating annual rent of £11.2 million a year across 113,500 square feet. Within this 18 new retail leases were signed securing £4.1 million of rent, with market lettings 18.1% ahead of March 2023 ERV. There are another £7.3 million of lettings under offer, 5.7% above March 2023 ERV.

The developer said central London is busy and workers have returned, particularly around its offices where 75% of the portfolio is in the West End, and 93% near new Elizabeth line stations.

The period had £123 million of acquisitions, including two for its burgeoning flex offices platform, and one headquarters opportunity, and it says more are expected in 2024, with GPE having one building under offer and £0.7 billion under review.

Flex space across its portfolio increased to 434,000 square feet, and it reported £5.4 million of fully managed lettings, 13.6% ahead of flex ERV. It said it is targeting an 1 million-square-foot flex portfolio, with it reaching 600,000 square feet organically and then expecting the rest of the growth to come via acquisitions.

Reflecting on the impact and opportunity created by coworking giant WeWork's decision to file for bankruptcy in the US recently, Nick Sanderson, CFO, said: "WeWork is interesting. Stepping back its strongest market has been in central London. We have said more customers want a service proposition, but we are very different to WeWork in that we own our spaces. In recent years we have been picking up WeWork customers who have graduated up to us; that started as three or four people businesses and now are 20 people but still want the aggravation of occupying space dealt with by us.

"Going forwards I think more customers will be focused on who owns the building. They want that to provide certainty of tenure. But our ambition around flex absolutely persists. We have felt the majority of smaller space deals in central London would get done on a flex basis and we are seeing that and we think the percentage will go up. In terms of locations we are super interested in Southwark, Soho and Fitzrovia but also looking at Farringdon and potentially Liverpool Street."

GPE is developing more than 1 million square feet of Grade A, sustainable spaces into what it describes as a supply drought, in particular a commitment to its French Railways House, SW1 development.

GPE announced an interim dividend of 4.7 pence, "in-line with guidance".

There is also more than £500 million of liquidity with a new term loan signed, while the loan to value is at 28.9%. GPE said £0.3 billion of sales are under discussion and says with the "cycle returning" its "strong track record and positioning" means it is ready to capitalise on emerging market opportunities.

Courtauld added: "Looking forward, we expect further acquisition opportunities to emerge, and with our trademark disciplined capital management, we will continue to recycle capital, selling properties to crystallise value on completion of our business plans."

GPE flagged that the period has seen senior operational team changes to improve what it called "market-leading customer experience and satisfaction".