28th March 2023

Regional REIT Limited

("Regional REIT", the "Group" or the "Company")

2022 Full Year Results

A robust performance with strong rent collections and increased rental income, with a sector leading dividend yield

Regional REIT (LSE: RGL), the regional office specialist today announces its full year results for the year ended 31 December 2022.

Financial highlights:

·   Net rental income increased by 12.2% to £62.6m (2021: £55.8m) - reflecting large portfolio acquisition in August 2021

·    EPRA EPS of 6.6pps (2021: 6.6pps); IFRS EPS (12.6)pps (2021: 6.3pps)

·    2022 dividend of 6.6pps (2021: 6.5pps), fully covered by EPRA earnings; currently yielding more than 11.3%*

·  Total rent collection for 2022 was 98.7%** of rent due, improved against the 97.7% of rent collected for the equivalent period in 2021

·    Primarily as a consequence of macro factors affecting the property sector, the portfolio value decreased to £789.5m (2021: £906.1m); reflecting a decrease of 12.1% on a like-for-like basis in the year, after adjusting for capital expenditure, acquisitions and disposals - outperforming the MSCI Rest of UK Office index capital decline of 17.3% over the same period

·    IFRS Net Asset Value per share 78.1p (2021: 97.4p); EPRA NTA per share of 73.5p (2021: 97.2p)

·    Rent roll remained strong at £71.8m (2021: £72.1m); average rent let by sq.ft. increased by 7.0% to £13.65

·    Group's cost of debt (incl. hedging) remained low at 3.5% pa (2021: 3.3% pa) - 100% fixed and hedged, ensuring the maximum cost of debt will not exceed 3.5% pa

·    Weighted average debt duration 4.5 years (2021: 5.5 years)

·    Net LTV increased to 49.5% (2021: 42.4%), due to the reduction in portfolio valuation; ample headroom remains on all loan covenants

 *At a share price of 58.2p at the close of 27 March 2023.

**As at 17 March 2023, rent collections to 31 December 2022 amounted to 98.7%; actual rent collected 98.7%, monthly rents 0.0% and deals agreed of 0.0%.

Operational highlights:

A high-quality portfolio of property assets diversified by geography and tenant type - generating substantial rental income whilst delivering a high quarterly dividend

·  Rental income generated from a large spread of tenants and industries across a growing and geographically diversified portfolio of 154 properties (2021: 168), 1,552 units (2021: 1,511) and 1,076 occupiers (2021: 1,077)

·    Portfolio valuation split by region: England 78.3% (2020: 75.7%), Scotland 16.7% (2021: 19.0%) and the balance of 5.0% in Wales (2021: 5.3%). In England, the largest regions were the Midlands and the South East

·    The Group made disposals amounting to £84.1m (net of costs) during 2022. The proceeds from these disposals were promptly recycled into acquiring £74.7m (before costs) of attractive earnings accretive assets

·    At the period end, 91.8% of the portfolio by market value was offices (2021: 89.8%), retail 3.6% (2021: 3.7%), industrials 3.1% (2021: 5.1%), and Other 1.4% (2021: 1.4%)

·    EPRA Occupancy (by ERV) was 83.4% (2021: 81.8%)

·    Completed 114 new lettings in 2022, totalling 330,173 sq. ft., which will provide gross rental income of c. £5.9m

Post period end

·    On 14 February 2023, the Company announced that 99% of its tenants had returned to the office in some form.

·    On 23 February 2023, the Company declared the Q4 2022 dividend of 1.65pps, which will be paid to shareholders on 6 April 2023.

Stephen Inglis, CEO of London and Scottish Property Investment Management, the Asset Manager, commented:

"Following the turmoil of the pandemic, 2022 was an operationally strong year with earnings accretive asset recycling of £84.1m (after costs) of disposals and £74.7m (before costs) of acquisitions in areas identified as growth regions across the UK.

"The macro-economic environment provided significant headwinds for REITs in 2022 and was one of the most challenging years we have seen for the property sector in some time, as inflation has driven costs upwards and the increase in interest rates impacted valuations. We have not been immune to these challenges, with rising energy costs putting pressure on net earnings and the portfolio valuation decreasing by 12.9% to £789.5m, versus the MSCI Rest of UK Office decline of 17.3%; reflecting a decrease of 12.1% on a like-for-like basis, after adjusting for acquisitions, disposals and capital expenditure.

"In spite of all of the challenges, robust rent collections of 99% for the twelve months ended 31 December 2022 enabled the delivery of a covered dividend of 6.6pps, which we had indicated at the beginning of 2022. I would like to take this opportunity to thank my team for all their hard work and yet again delivering for our shareholders.

"As previously announced, a November 2022 study of our tenant's active occupation noted 99% of our tenant roster had returned to the office in some form, with only 12 tenants still to return, and we are witnessing increasing numbers of employees returning across all regions of the UK. I have consistently stated that it will be the end of 2023 and into 2024 before we see any long term trends emerging as companies see employees return to the office in numbers, which will then determine what works best for their business and their employees. It is clear there will not be a one size fits all strategy. However, the clear anecdotal evidence convinces me that most businesses will end up with the majority of people in the office the majority of time, which remains supportive for overall demand in our sector."

Forthcoming Events

Note: All dates are provisional and subject to change.

- ENDS -

Enquiries:

About Regional REIT

Regional REIT Limited ("Regional REIT" or the "Company") and its subsidiaries (the "Group") is a United Kingdom ("UK") based real estate investment trust that launched in November 2015. It is managed by London & Scottish Property Investment Management Limited, the Asset Manager, and Toscafund Asset Management LLP, the Investment Manager.

Regional REIT's commercial property portfolio is comprised wholly of income producing UK assets and comprises, predominantly of offices located in the regional centres outside of the M25 motorway. The portfolio is geographically diversified, with 154 properties and 1,076 occupiers as at 31 December 2022, with a valuation of c.£789.5m.

Regional REIT pursues its investment objective by investing in, actively managing and disposing of regional core and core plus property assets. It aims to deliver an attractive total return to its Shareholders, targeting greater than 10% per annum, with a strong focus on income supported by additional capital growth prospects.

For more information, please visit the Group's website at www.regionalreit.com.

Cautionary Statement

This document has been prepared solely to provide additional information to Shareholders to assess the Group's performance in relation to its operations and growth potential. The document should not be relied upon by any other party or for any other reason. Any forward-looking statements made in this document are done so by the Directors in good faith based on the information available to them up to the time of their approval of this document. However, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

ESMA Legal Entity Identifier ("LEI"): 549300D8G4NKLRIKBX73

Financial Highlights

Year ending 31 December 2022

Income focused - opportunistic buying and strategic selling, coupled with intensive asset management, continues to secure long-term income

* The European Public Real Estate Association (EPRA)

** Alternative Performance Measures. Details are provided in the full Annual Report.

EPRA

The EPRA's mission is to promote, develop and represent the European public real estate sector. As an EPRA member, we fully support the EPRA Best Practices Recommendations. Specific EPRA metrics can be found in the Company's financial and operational highlights, with further disclosures and supporting calculations can be found within the full Annual Report.

Operational Highlights

Year ending 31 December 2022

Deliberately diversified and strengthened portfolio by location and tenant - regions primed for growth

* Alternative Performance Measures. Details are provided in the full Annual Report.

Performance Highlights

Year ending 31 December 2022

The high dividend distributions are a major component of the total return

EPRA

^Admission: 6 November 2015

Member of FTSE All-Share Index since March 2016

Member of FTSE EPRA NAREIT UK Index since June 2016

Total EPRA Return (from IPO)

(EPRA NTA and dividend declared)

Chairman's Statement

"Despite the challenging macroeconomic backdrop impacting valuations across all sectors of commercial real estate, Regional REIT achieved a good operational performance throughout 2022. Rent collections normalised and our market fundamentals remained robust allowing for an increase in the quarterly dividend distribution for 2022.

Our unique sector leading asset and property management teams continued to manage the portfolio with a hands-on approach, providing our customers with vibrant spaces within which they can thrive and grow."

                                                                                                                                Kevin McGrath, Chairman

Overview

I am pleased to report the Group performed operationally well during a difficult year, driving forward the EPRA* earnings per share to 6.6p and increasing the dividend per share to 6.6p. The lifting of the Government restrictions across the UK in the early part of 2022 witnessed the return to the office, the normalisation of rent collection and increased space enquiries resulting in increased active occupancy across the portfolio.

We continued to work closely with our occupiers providing vibrant spaces within which they can grow their businesses, increasing our diversification by occupier profile, whilst enhancing our Environmental, Social and Governance ("ESG") credentials.

Following the tightening of the monetary policy implemented in 2022, real estate values across most sectors were impacted. Our portfolio has not been immune with the value decreasing by 12.9% to £789.5 million; after adjusting for acquisitions, disposals and capital expenditure, reflected a decrease of 12.1% on a like-for-like basis. However, it has been resilient versus a decline of 17.3% for the MSCI Rest of UK Offices Index. During 2022, we continued to drive forward our strategy of being the regional office specialist of choice, with the disposal of non-core assets amounting to £84.1 million (net of costs) and net initial yields of 4.9%. The proceeds have been promptly recycled into acquiring higher yielding properties of superior quality, amounting to £74.7 million before costs and reflecting net initial yields of 8.4%. Market conditions continue to present opportunities with the aforementioned disposals and acquisitions adding a net £1.6 million to the rent roll. The assets acquired are located in areas identified as places of regional growth. The rolling capital expenditure programme amounted to £10.0 million.

Timely capital recycling continued to underpin our defensive strategy of focusing upon opportunities to de-risk our offering both by geographical and tenant spread.

Rent collection remained strong throughout 2022. Currently, rent collection for the period to 17 March 2023 amounts to 98.7%** (2021: equivalent period 97.7%) and resulted in EPRA basic and diluted earnings of 6.6 pence per share ("pps") (2021: 6.6pps). IFRS basic and diluted loss per share were (12.6pps) (2021: gain 6.3pps). The dividend was covered by EPRA earnings.

* Alternative Performance Measures. Details are provided in the full Annual Report.

**As at 17 March 2023, rent collection to 31 December 2022 amounted to 98.7%; actual rent collected 98.7%, monthly rents 0.0% and deals agreed of 0.0%.

Financial Resources

The Company continues to be in a financially robust position with an EPRA NTA of £379.2 million (31 December 2021: £501.4 million) and a cash balance of £50.1 million as at 31 December 2022 (31 December 2021: £56.1 million), of which £37.8 million is unrestricted (31 December 2021: £49.9 million).

One of the Company's key achievements has been its defensive debt positioning which aims to mitigate rate volatility. The borrowings comprise of 56.9% of fixed rate debt, with the balance being swapped or capped. This proactive and defensive approach ensured that the weighted average cost of debt increased only marginally to 3.5% at 31 December 2022 from 3.3% at 31 December 2021.

Furthermore, the simple and flexible debt profile with strong lender relationships continued to ensure that the Company is well positioned for any further economic turbulence. These attributes remain evident going forward with no requirement to refinance until August 2024.

Following this active period of capital recycling, the net borrowings Net Loan-to-Value (LTV) at 31 December 2022 amounted to 49.5% (31 December 2021: 42.4%). The programme of asset management initiatives continues to be executed to ensure the LTV reverts to our long-term target of c. 40%.

Our debt facilities have ample headroom against their respective covenants and the Company is in a robust position from a debt perspective.

Sustainability

We have continued to devote significant resources to further integrate sustainability within our business model. Particularly noteworthy in this regard is the appointment of Massy Larizadeh as a non-executive Director of the Company in June 2022 who will lead the Board's efforts in relation to ESG.  

We were pleased to increase our Global Real Estate Sustainability Benchmark (GRESB) from 52 to 60, and to be awarded an inaugural bronze for EPRA sustainability disclosures. During 2022, with the assistance of our external advisors, we have made good progress on our individual properties' Net Zero Carbon (NZC) surveys. Once the surveys have been completed, we will announce NZC pathway and targets.

During the year the team benefitted from training regarding sustainability matters provided by external consultants.

In addition, the Company has joined the UK Green Building Council and the Better Building Partnership.

Market Environment

Investment in the UK commercial property market reached £54.1 billion in 2022, according to research by Lambert Smith Hampton ("LSH") ¹, although this was 5.0% below the volumes recorded in 2021, it was 3.0% above the five-year average and 9.7% above pre-COVID-19 levels in 2019.

Savills research highlights that regional office investment in the second half of 2022 was muted at £1.5 billion. This brought the total regional office investment in 2022, 26.9% below the five-year average. Savills anticipate that regional office investment will remain subdued in short-term. However, some research suggests that confidence is now building among overseas investors as capital values fall and the occupational market remains robust.

According to MSCI, average rents in the regional office market (outside of London and the South East) increased by 1.5% in 2022.

More details can be found in the Asset Manager's Report in the full Annual Report.

Dividends

The dividend is the major component of Total Shareholder Returns. Over the period under review, the Company declared total dividends of 6.6pps (2021: 6.5pps), comprising four quarterly dividends of 1.65pps. This represents a yield of 11.2%, at a share price of 59.0p as at 31 December 2022. Since inception, the Company has declared dividends amounting to 52.3pps and to date the Company has distributed c.£200 million in dividends.

It should be highlighted that looking ahead there is a clear aspiration by the Board to maintain its record of uninterrupted quarterly dividend payments. This is predicated on the strength of the Company's balance sheet and the strong rent collections received throughout the year.

Performance

For the year under review, the Company's Total Shareholder Return was -31.3%, versus the return of -31.9% for the FTSE EPRA NAREIT UK Total Return Index over the same period.

Since listing on 6 November 2015, the Company's EPRA Total Return was 24.2% and the annualised EPRA Total Return was 3.1%. Total Shareholder Return was 1.4%, compared to the FTSE EPRA NAREIT UK Total Return Index, which has generated a return of -16.9% over the same period.

Management Agreements

Following a review by the Management Engagement and Remuneration Committee (the "MERC") and having sought advice from Peel Hunt LLP, the Company's Financial Adviser and Broker, the Company and the Asset and Investment Managers agreed to amend the terms of the annual management fees charged, by reducing their fees to: (i) 1.1% of the EPRA NTA up to and equal to £500,000,000; (ii) 0.9% of EPRA NTA above £500,000,000 and up to or equal to £1,000,000,000; (iii) 0.7% of EPRA NTA above £1,000,000,000 and up to or equal to £1,500,000,000; and (iv) 0.5% of EPRA NTA above £1,500,000,000.

In addition, the management agreements between the Company and the Asset and Investment Manager had a three-year term to November 2023. In view of the resilient returns of the Company, the significant increase in its size and there being less than one year to expiry of the current agreements, the Board sought to secure the services of the Managers. In doing so, the Committee conducted a review to ensure that the terms of these agreements remained appropriate. The Committee sought advice from Peel Hunt LLP and Macfarlanes LLP, the Company's Legal Adviser. Following this review, which included comparisons of Shareholder returns against those of its peer group and consideration of the interests of the Company, the Company and the Managers each agreed to waive their right to issue a termination notice on or before 3 November 2022 and the management agreements will now continue in force until 3 November 2026.

Annual General Meeting

The Company plans to hold its 2023 Annual General Meeting ("AGM") in person on Wednesday, 25 May 2023. The notice for the 2023 AGM will be published on our website and will be circulated to Shareholders in accordance with the requirements of the Company's Articles of Incorporation.

Mr Bee and Mr Eason will not stand for annual re-election at the forthcoming AGM by reason of re-location overseas and ill health, respectively. The Board thanks Mr Bee and Mr Eason for their invaluable commitment to the Company and wishes them well for the future.

Mr Taylor will assume the role of Senior Independent Director and Ms Larizadeh will become Chair of both the Nomination Committee and the Management Engagement and Remuneration Committee.

The Board does not intend to appoint new Directors in the short-term and will incorporate discussions to ensure an orderly refreshment of the Board in its current succession planning.

The Board very much looks forward to meeting with Shareholders at the AGM.

Shareholder and Stakeholder Engagement

Ultimately, the experience of our tenants and other stakeholders will influence our performance. Our aim is to continue to offer great working environments, from a small flexible unit to a landmark corporate headquarters, allowing our tenants to thrive.

Direct engagement with our tenants is an important part of our asset management initiatives, to help us understand their needs and identify opportunities and challenges. We encourage our tenants to work openly and collaboratively with us to enable us to continually improve our workspaces and deliver mutual benefit. Likewise, we encourage this with our stakeholders to ensure we can continually improve our operations. The Company has continued to develop its relations with investors and more details can be found on the Company website www.regionalreit.com. Further information on Shareholder and Stakeholder engagement can be found in the full Annual Report.

Board and Governance

Following an internal review of the Board's effectiveness, and as part of a drive to ensure an orderly refreshment of the Board with the development of the Group, on the 25 May 2022 the Nomination Committee appointed Massy Larizadeh as a non-executive Director of the Company. Massy also became a member of the Audit Committee, Nomination Committee and Management Engagement and Remuneration Committee. Massy has a particular interest in ESG issues and as such will be taking a lead role in the Company's ESG matters.

Outlook

Whilst we are acutely aware of the challenging backdrop, including labour shortages, inflationary pressures, tightening monetary policy and geopolitical uncertainties arising from the continued Ukrainian conflict, we remain confident of maintaining high rent collections and accelerating the momentum on the asset management initiatives for the remainder of 2023. The Board believes these actions will result in the continued de-risking of the portfolio, whilst continuing to deliver income and long-term total returns for our shareholders.

The UK region's economic activity continues to strengthen, and companies continue to require office space in our identified growth areas. Regional REIT remains well positioned to meet the challenges and take the opportunities that will inevitably arise in the coming years.

Kevin McGrath

Chairman

27 March 2023

Asset and Investment Managers' Report

"The macro-economic environment provided significant headwinds for REITs in 2022 being one of the most challenging years seen for the property sector in some time, as rising interest rates impacted valuations. The Company was not immune, with the portfolio value decreasing by 12.9% to £789.5m; and after adjusting for acquisitions, disposals and capital expenditure, reflected a decrease of 12.1% on like-for-like basis. In turn the loan to value amounted to 49.5%. Importantly, however, the Company has ample headroom on the covenants and the weighted average cost costs of debt remained fixed at 3.5%.

We are proud of our strong relationships with our tenants, which has led to another robust set of rent collections figures, totalling 98.7% for the twelve months ended 31 December 2022. The tenant base remains highly diverse both in terms of sector and geography.

Despite the challenging economic environment, the Company's net rental income increased by 12% year-on-year, to £62.6m, which is in part testament to our active asset management approach to identify value enhancing opportunities within the portfolio whilst regularly reviewing rents.

Our consistent quarterly dividend continues to provide our shareholders with a strong and reliable level of dividend income, yielding 11.3% on the share price as at 27 March 2023. The dividend is fully covered by EPRA earnings, which we hope provides shareholders with a high level of confidence in the sustainability of future dividend payments."

Stephen Inglis

CEO of London & Scottish Property Investment Management,

Asset Manager

Highlights from 2022

·     High level of rent collection

Achieved a high level of rent collection. As at 17 March 2023, rent collection continued to strengthen, with FY 2022 collections increasing to 98.7%, adjusting for monthly rent and agreed collections plans, which is similar to the equivalent date for 2021 when 97.7% had been collected.

·     114 new lettings

Completed 114 new lettings in 2022, totalling 330,173 sq. ft., which when fully income producing after incentives will provide a gross rental income of c. £5.9 million.

·     £74.7 million of acquisitions

Acquisitions in 2022 totalled £74.7 million (before costs) for 6 assets, reflecting an average net initial yield of 8.4%.

·     £84.1 million of disposals

Disposals during 2022 totalled £84.1 million (net of costs), reflecting an average net initial yield of 4.9% (6.3% excluding vacant properties).

·     Increase in average rent

Average rent by let sq. ft. increased by 7.0% from £12.75 per sq. ft. in December 2021 to £13.65 per sq. ft. in December 2022. MSCI monthly data shows rental growth of 1.5% for rest of UK offices over the same period.

·     Decrease in capital value

The like-for-like value of the portfolio decreased by 12.1% in 2022 after adjusting for capital expenditure, acquisitions and disposals during the period (11.0% excluding capital expenditure adjustment). MSCI monthly data shows capital value decline of 17.3% for rest of UK offices over the same period.

Investment Activity in the UK Commercial Property Market

Investment in the UK commercial property market reached £54.1 billion in 2022, according to research by Lambert Smith Hampton ("LSH")¹. Although this was 5.0% below the volumes recorded in 2021, it was 3.0% above the five-year average and 9.7% above pre-COVID-19 levels in 2019. Investment volumes fell in each quarter throughout 2022 when compared to the previous quarter. In the final quarter of 2022, overall investment fell by 40.7% to £7.3 billion, the lowest level recorded since Q2 2020. Investment in Q4 2022 marked a decline of 44.3% against the five-year quarterly average. However, it is worth noting that although investors were increasingly cautious in the second half of 2022, investment in Q1 2022 and Q2 2022 proved robust when compared to the five-year quarterly average, up 33.2% and 29.4%, respectively.

LSH research notes that investment was more resilient across UK regional markets, compared to London. Investment in UK regional markets held up well in 2022 relative to trend, with annual investment reaching £18.6 billion, 0.8% above the five-year average. Conversely, London volumes were down relative to trend, with 2022 volumes falling 7.1% below the five-year average at £18.7 billion. The largest increase in regional investment in 2022 relative to the five-year average occurred in the West Midlands, South East and North West.

Savills research highlights that regional office investment in the second half of 2022 was muted at £1.5 billion. This brought the total regional office investment in 2022, 26.9% below the five-year average². Savills anticipate that regional office investment will remain subdued in short-term. However, some research suggests that confidence is now building among overseas investors as capital values fall and the occupational market remains robust. Additionally, the most recent data from the ONS shows that the UK employment rate rose to 75.6% in the three months to December 2022, up from 75.5% for the same period in 2021³.

The Asset Manager's strong opinion is that the office will continue to play a vital role in working life regardless of whether hybrid or more traditional working practices are adopted. It is our opinion that many occupiers will require more office accommodation in future due to both employment growth and aiming to improve the working environment, including more space per staff member.

1 Lambert Smith Hampton, UKIT Q4 2022

2 Savills, Market in Minutes, Q4 2022

3 ONS, Labour Market Overview, UK - March 2023

Overseas investment in the UK property market accounted for just over half (50.1%) of total investment in 2022, according to data from LSH. LSH estimates that total overseas investment in 2022 reached £27.1 billion, 3.5% lower than 2021 volumes, but 4.2% above the five-year average and 7.9% higher than pre-pandemic levels. Overseas investment in Q4 2022 amounted to £2.9 billion, 52.0% below Q3 levels and 55.6% below the five-year quarterly average. Although overseas investment has dropped in recent months, international investors were net buyers in Q4 overall £2.1 billion), with low disposals relative to trend, therefore highlighting that investor sentiment remains positive and that there is not a push to exit the UK. It is worth noting that a fall in investment was not witnessed for all investors, with investment volumes from North American investors increasing by 7.0% in Q4 2022.

Research from CBRE4 indicates that regional offices have outperformed in comparison to central London offices, delivering superior income returns of 5.1% in 2022 in comparison to central London office returns of 3.6% - a trend that has been witnessed over the past eight years.

4 CBRE Monthly Index, Q4 2022

Central London & Regional Office Income Returns (12 months to December 2022)

Source: CBRE (February 2023)

Occupational Demand in the UK Regional Office Market

Avison Young estimates that take-up of office space across nine regional office markets⁵ totalled 8.1 million sq. ft. in 2022; marginally below (0.3%) the level of take-up recorded in 2021 and 3.1% lower than the 5-year average. That said, it is worth noting that take-up in 2022 was 41.4% above the level reported in 2020. Take-up in the final quarter of 2022 was 18.2% above the five-year average at 2.5 million sq. ft., marking the highest quarterly take-up figure in 2022. Approximately 66.9% of take-up in Q4 2022 was transacted in city centres, with 33.1% transacted in the out of town market - both the city centre and out of town markets performed well relative to trend in Q4 2022. Avison Young highlights that occupiers have increasingly sought greater quality space to attract and retain talent.

Occupational demand was driven by the technology, media & telecoms sector, which accounted for the highest proportion of take-up at 19.2% in 2022. Following the technology, media & telecoms sector, the professional sector and the public services, education & health sector accounted for the second and third largest proportion of take-up in the regional cities, accounting for 17.8% and 14.0% respectively.

According to Savills, there was marginal decrease in availability for regional office stock across ten regional UK markets⁶, with total supply falling by 1.0% in 2022 to 14.4 million sq. ft.. The decrease in supply over the last 12 months has resulted in supply falling 2.2% below the 10-year average. This marks the first year that supply of office stock has decreased after increasing each year since 2019. However, it is worth noting that there was an increase in supply of prime space, which increased by 5.4% in 2022. Therefore, the fall in supply can be attributed to the secondary office supply, which decreased by 4.4% in 2022.

The overall vacancy rate for regional offices ticked upwards from 12.5% in 2021 to 12.6% in 2022 but remains in-line with the 10-year average⁷.

Furthermore, it is estimated that approximately 5.1 million sq. ft. of office space is currently under construction in the Big Nine regional markets, with Manchester, Bristol and Birmingham accounting for 22.1%, 19.6% and 14.8%, respectively. Approximately 33.0% of office buildings currently under construction are already pre-let.

5 Nine regional office markets mentioned by Avison Young include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester & Newcastle.

6 Ten regional office markets mentioned by Savills include: Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds, Manchester and Oxford.

7 Savills: The Regional Office Market Overview, Q4 2022.

The Asset Manager's opinion is that occupational market fundamentals remain robust despite the recent fall in capital values. Overall, there appears to be a disconnect between the investment market and the occupational market. The Asset Manager's view is that there will be hard work ahead throughout 2023, but that the market will be fundamentally steady, with no large declines nor large increases in activity. Additionally, the occupational market will continue to witness a rise in office occupancy as employees return to the office.

Rental Growth in the UK Regional Office Market

The CBRE Monthly Index shows that rental value growth held up better for the rest of UK office markets in the 12 months ended December 2022 with growth of 2.6%. Conversely, central London offices experienced a more modest level of growth during 2022 of 1.5%. According to MSCI, average rents in the regional office market (outside of London and the South East) increased by 1.5% in 2022. According to the monthly MSCI digest index, Rest of UK and Mid Town & West End offices recorded the strongest rental growth in December 2022. Demand for quality office space has put an upward pressure on prime rents, with growth of 6.5% recorded across the Big Nine regional markets in 2022, with average headline rents now sitting at £34.78 per sq. ft., according to research from Avison Young.

Regional REIT's Office Assets

EPRA occupancy of the Group's regional offices rose to 82.8% (2021: 80.8%). A like-for-like comparison of the Group's regional offices' EPRA occupancy, as at 31 December 2022 versus 31 December 2021, shows occupancy of 81.5% (2021: 84.0%). WAULT to first break was 2.7 years (2021: 2.6 years); like-for-like WAULT to first break of 2.7 years (2021: 2.7 years).

Property Portfolio

As at 31 December 2022, the Group's property portfolio was valued at £789.5 million (2021: £906.1 million), with rent roll of £71.8 million (2021: £72.1 million), and an EPRA occupancy of 83.4% (2021: 81.8%).

On a like-for-like basis, 31 December 2022 versus 31 December 2021, EPRA occupancy was 82.1% (2021: 84.5%).

There were 154 properties (2021: 168) in the portfolio, with 1,552 units (2021: 1,511) and 1,076 tenants (2021: 1,077). If the portfolio was fully occupied at Cushman & Wakefield's view of market rents, the rental income would be £92.0 million per annum as at 31 December 2022 (2021: £94.6 million).

As at 31 December 2022, the net initial yield on the portfolio was 6.0% (2021: 5.6%), the equivalent yield was 9.0% (2021: 8.7%) and the reversionary yield was 10.2% (2021: 9.4%).