ADBE Adobe Inc

By Olga Cotaga

(Adds analyst comments and share price.)

LONDON--Derwent London PLC (DLN.LN) said the uncertainty caused by the U.K. vote to leave the European Union is going to take a toll on the London office market, and as a result, lowered its expectations on how much in rent it will be able to get in 2016.

"We recognize that, in the short term, political and economic uncertainty is likely to lower demand," Derwent said.

Derwent, a real estate investment trust with assets in central London, said it now expects the estimated rental value of its portfolio to grow between 1% to 5% in 2016, down from a 5% to 8% previously-guided growth.

Chief Executive John Burns said the change in rent value expectations comes "from being cautious" and that he would "like a surprise on the upside."

Derwent said yields might rise marginally in the second half of the year in response to a lower demand.

After the company ended its half-year period, it had let a total of 112,600 square feet, almost half of the lettings agreed on in the six months to June 30. UBS, who had a 'buy' rating for the company, said these six months were Derwent's "most active half-year ever."

Just 2% of the commercial space Derwent rents is empty.

Derwent targets middle market rents in areas such as Islington, Shoreditch and Whitechapel, and only 2.3% of its June rental income came from tenants in the financial sector.

One of Derwent's big developments, the White Collar Factory, that is next to the Old Street roundabout, is 56% pre-let, said Mr. Burns, adding that companies such as Adobe and Capital One are among those who have reserved some of the office space. The office tower of the development is 70% pre-let.

The rent agreed on at the White Collar Factory is above the estimated rental value, the company said. Construction at the 293,000 square feet development is due to complete at the end of 2016.

Other major developments due over the next 18 months are 58% pre-let.

The chief executive said the company hasn't made any changes to its developments after Brexit, but reiterated on its cautious outlook.

UBS said there is a possibility for Derwent to defer its Brunel building in Paddington after 2019, but added that most probably the company will go ahead with the scheme as planned. The Brunel development is expected to be completed in the first half of 2019.

The board raised the interim dividend by 10% to 13.86 pence a share.

Derwent made a pretax profit of GBP98.5 million ($127 million) for the six months period, much less than the GBP405 million for the same period last year, despite gross property and other income rising to GBP101.4 million from GBP91.1 million.

The revaluation surplus this half-year was of GBP64.5 million, smaller than the GBP361 million a year earlier. Derwent's adjusted profit before tax rose 15% to GBP44.8 million.

Shares were down 3.3% at 2725 pence.

Write to Olga Cotaga at olga.cotaga@wsj.com, Twitter @OlgaCotaga

(END) Dow Jones Newswires

August 11, 2016 08:24 ET (12:24 GMT)

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