London's office market is suffering an office 'recession', as empty spaces across the UK's capital hits a 30-year high, financial services company Jefferies said in a note. The New York-based firm said that there has been a 20 per cent contraction in London office usage as working from home and hybrid working, as well as a move toward green offices, continue to be a priority, CNBC reported.
"Retail was technology's first casualty and we think offices are next. Utilisation has shrunk and landlords are losing pricing power as tenants offload surplus space," the analysts said.
The analysts told CNN that London offices were last this empty in 1993 when the UK economy was in recession and its real estate market had crashed.
Now, the business districts are suffering after remote work for more than three years after the pandemic. Jefferies estimates that utilization of the city's offices has fallen 20% since the end of 2019 as remote and hybrid work has flourished, the media outlet reported.
The firm said that office vacancies have now reached a "tipping point" beyond which rents would typically start to fall, apart from in the case of sustainability-focused buildings.
The note said that flexible, co-working and serviced offices take up around 9 per cent of London's space and moved into some of the vacant spaces.
At more than 30 pounds ($36) a square foot, Jefferies said rents achieved by warehouse landlord Segro (SGRO.L) at logistics park Park Royal were likely now higher than the market rate at Canary Wharf, home to major financial tenants including Barclays (BARC.L), JPMorgan (JPM.N) and Morgan Stanley (MS.N).
Long-term Canary Wharf resident HSBC (HSBA.L) recently announced it would relocate to a much smaller office in the City, a Reuters report said.
Land Securities, which hosts a capital markets event for investors on Wednesday, separately said demand for its central London office portfolio remained "strong", with occupancy up to 96.9% over the first five months of the financial year.
Meanwhile, Meta Platforms has also surrendered one of the two buildings it had leased at London's Regent's Place, as tech companies turn cautious about office real estate due to prevailing macroeconomic uncertainties. Meta had agreed to pay $181 million to break its lease on a 310,000-square-foot office.
The property firm said the lease surrender would lead to an earnings per share dilution of about 0.6 pence for its half-year period ending September 30.
