London offices are in ‘rental recession’ thanks to rise in remote working, analysts warn

By Jessica Clark

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Updated: 05:19EDT, September 28, 2023

London’s office market is in a “rental recession” with vacancies in the capital’s traditional business districts at their highest level in 30 years, according to a report.

Jefferies analysts estimated that office space in use in the city, West End and Canary Wharf has shrunk by up to 20 per cent.

HSBC will vacate its former headquarters in Canary Wharf for the City, where it will rent 30 per cent less space, and Barclays has consolidated its office space in the east London business district.

Jefferies analysts estimated that office space in use in the city, West End and Canary Wharf has shrunk by up to 20 per cent.

Meanwhile, Facebook owner Meta this week paid British Land £149m to cancel its lease on a major development near Regent’s Park.

Property experts said demand for new, high-quality office space in central London remains strong as companies try to attract workers back to the office.

New developments in the West End and the city are doing well.

But older buildings that are no longer attractive to staff who prefer to work from home are empty.

Canary Wharf is struggling across the board as employees do not consider it a desirable destination.

Bicycle parking, showers, terraces, cafes and breakout spaces are among the must-haves for companies looking for new offices, as well as a location with bars, shops, restaurants and fast transport links.

David Earle, head of Lambert Smith Hampton’s London office, said the demand for as pleasant a work environment as possible is an attempt to “attract people back to the office and recruit and retain top talent.” .

James Carswell, research analyst at Peel Hunt, said: “Vacancy levels have definitely increased, but when you look at Grade A buildings, the best in class, there are still very, very few.” The shift to high-end office buildings is “due to the fact that employees have the option to stay home, but employers would like them to come but don’t want to force them,” he said.

“Canary Wharf is a bit of a sterile environment and it’s not that easy for people to access,” Carswell added.

Commercial owners are changing their strategy to adapt to this trend.

Land Securities yesterday praised strong demand for “best-in-class” London offices and said its decision to offload £2.2bn of space, predominantly in the City, had been “very timely”. Its portfolio in Victoria (not traditionally one of the capital’s main business districts) is 100 per cent let and rents at two new developments in the area are more than 10 per cent above expectations.

Victoria is an area attracting business, Earle said, along with Clerkenwell, Farringdon and London Bridge, due to accessibility and cheaper rents.

Land Securities’ £400m redevelopment of Victoria tower block Thirty High will include a rooftop terrace, event space, cycle storage and showers.

Oliver Knight, workplace director at Land Securities, previously said: “The office has to be more than just a place to work… People choose to spend time in the office if it offers them something they can’t recreate at home .’ Meanwhile, British Land said Meta’s handover of the office at 1 Triton Square would allow it to accelerate plans to create a life sciences campus at the central London location.

Drinkers recover…

While there are large swathes of empty office space across London, workers who have returned to their desks frequent the local pub.

That’s the verdict from the boss of Shepherd Neame, Britain’s oldest brewer, as the company reported a 9.7 per cent rise in revenue to a record £166.3m for the 12 months to 24 of June.

The 325-year-old company, with headquarters in Faversham, Kent, and 296 pubs across the south-east, said sales within the M25 were up 30.6 per cent year-on-year, while those outside the M25 were up 6.6 percent.

Chief executive Jonathan Neame (pictured) said the improvement in London was “driven by further momentum in returning to offices”, with the re-emergence of after-work pint on Fridays. He told the Evening Standard: “Fridays are not the disaster they were, there is trade now.”

“People are starting to realize that working from home more than one day a week is not a life.”

Rising costs meant profits for the year fell from £7.4m to £4.9m.

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