The pandemic has knocked London office rents down by more than a tenth, according to one of the capital’s top landlords.
Workspace, a FTSE 250 office provider, said the average rent per square foot in its offices had fallen 13 per cent in the year to March 31, due to weak demand as workers were barred from their offices by coronavirus restrictions.
“Last year was not pretty,” said Graham Clemett, the company’s chief executive, adding that it had “seen a lot of customer distress” and lost about 10 per cent of its clients.
“We were able to grab a bit of demand, but in a very thin market that meant prices were lower.”
Tumbling rents dragged the company’s property valuation down by a tenth, on an underlying basis, to £2.3bn, said Workspace, which unveiled its full-year results on Thursday.
And rents might fall further over the next year as the company prioritises attracting new tenants over keeping rents high, said Miranda Cockburn, an analyst at Panmure Gordon.
“If they are focusing on occupancy that means rents will have to move backwards,” she said, adding that Workspace — which offers tenants a space within a shared office on a relatively flexible, short-term lease — was “well positioned for the new way of working”.
If current coronavirus restrictions are removed as planned over the next month, a full recovery in occupancy and rents might still take two years, estimated Clemett, who characterises the pandemic as a “very severe disruption”.
But he added: “We still have the same portfolio we had a year ago, when we hit record profits. Nothing has been irreparably damaged.” Workspace has recommended paying a final dividend.
Demand from prospective tenants has increased in the first three months of this year, and occupancy rates have ticked up from 20 per cent of pre-Covid levels at the end of March to 33 per cent at the end of May.
Across the company’s portfolio of offices, Mondays and Fridays have been quieter than days in the middle of the week. But beyond stocking the restaurants and cafés at each workspace accordingly, Clemett said there was no need to change how offices were run to accommodate more flexible use.
The company is looking at opportunities to pick up office buildings from other landlords in the capital and has about £250m in undrawn lending facilities with which to do so.
The rising costs of bringing buildings up to more stringent environmental standards might force landlords with smaller balance sheets to sell up, said Clemett.
Shares in Workspace fell 2 per cent on Thursday morning.