25% Of London Firms Downsized Office Space
UNITED KINGDOM – As companies institutionalise flexible work arrangements, a survey by Bloomberg Intelligence showed that firms operating in London are slashing their office footprints and are shunning traditional long office leases, according to a recent report from Bloomberg.
A poll of 500 London staff found out that 1 in 4 companies operating in the city have reduced their office space, while a further 18 percent have decided to take up coworking space.
This trend also is pushing up office vacancy levels, and is leading to a higher office rental gap between newer office properties and less desirable ageing buildings, stated Bloomberg Intelligence analysts Sirine Bouzid and Sue Munden.
The long-term effect of the work-from-home (WFH) trend due to the COVID-19 pandemic is beginning to become more evident as more office leases near their expiration and employees remain reluctant to return to their workplace. Although office occupancy rates have slowly risen from their COVID lows, the study’s results indicate that more companies are thinking that flexible work arrangements are here to stay.
“The work-from-home era is polarizing vacancy and office rents between prime space owned by real estate investment trusts, such as Derwent London Plc and Land Securities Group Plc, and second-hand office space,” noted Munden.
Overall, 73 percent of the respondents disclosed that their firm plans to move or have already relocated to new office space, up from 50 percent in June 2022. This has resulted in many older office properties being vacant, with the office vacancy levels in some central London districts now surpassing 10 percent, even though the supply of eco-friendly office space remains severely limited.
Moreover, the research showed that 70 percent of the respondents’ employers have formally embraced a flexible work policy, while 30 percent are still undecided on this.
The pivot to more flexible working is prompting commercial property owners like British Land and Great Portland Estates to offer long leases on modern green office buildings, on top of short-term contracts for more flexible office spaces.
Furthermore, companies are investing in office space that will help attract & retain employees, leading to a premium for prime office buildings with more amenities. These office properties still command top office rents thanks to their low supply.