Insights

Following the demise of coworking company WeWork and Meta, parent company of Facebook, reportedly paying £149m to break its central London lease, it seems an office recession is looming as companies increasingly abandon expensive and unnecessary work spaces particularly in London.

Whilst WeWork closes its offices around the world, it may not signal the end of coworking spaces despite hybrid working trends now embedded in the UK’s office culture since the pandemic. WeWork’s model, for example, taking on leases and collecting the revenue themselves rather than partnering with real estate companies, has been cited as one of the reasons it became more vulnerable to economic shifts.

In its article exploring the utilisation of the office for this year, Knight Frank highlighted the trend for flexible workspace where collaboration, wellbeing and smart office solutions for a more sustainable space as one which will continue to gather pace. In its 2024 outlook report, CBRE expects office take up to be on a par with 2023 with demand for high quality buildings in the best locations remaining strong. But it may well be that companies will be looking at different places to perhaps what we might have expected in the past.

Last summer, HSBC announced it would be leaving its Canary Wharf home after two decades when its lease runs out as it looks to downsize its office space liability. When Canary Wharf was developed 30 years ago as a financial hub to rival Wall Street, no one imagined a global pandemic would give rise to hybrid working whilst economic pressures would see companies vacating in droves.

London’s office space is entering a ‘rental recession’, according to a recent report by analysts at Jefferies which calculated the market has shrunk by 20% and vacancies are at a 30-year high. As well as hybrid working, the reduction in office space demand is as a result of organisations pursuing a greener agenda for its workspaces opting for out-of-town more sustainable buildings.

Newer offices with amenities such as bike racks and showers as well as nearby bars and restaurants, continue to perform well but older properties are struggling to find tenants whilst Canary Wharf itself is now no longer seen as a popular destination for employees, the report indicated.

The Daily Mail reported London’s third tallest building and perhaps the capital’s most famous office block, One Canada Square, is 36% empty. Its vacant space was just 4% in London in 2019 before the pandemic hit. According to the newspaper’s sources, the building’s empty space stands at almost half-a-million square feet although it also reports Canary Wharf’s own figures which puts it at 275sqft. Canary Wharf’s vacancy rate at 14.3%, the report states, is well above the 9.2% central London average.

Primarily an office location, it is argued, this is one of its most off-putting characteristics. Such a sterile environment is not attractive for workers who want variety, vibrancy and a range of facilities whilst a lack of community adds to its lacklustre image. Meanwhile, conscious of corporate green credentials, cost savings offered by more energy efficient properties, and potential future legislation demanding greener and cleaner buildings, many companies are looking elsewhere.

Canary Wharf though, has been undergoing a regeneration including the new 23-acre Wood Wharf neighbourhood where 3,600 new homes are earmarked along with retail units, bars, restaurants, a new NHS doctor’s surgery and a primary school. It also incorporates another two million square feet of office space.

Already, regeneration has seen 3,500 people move in to call the area home. Retailers, bars, restaurants and leisure facilities have opened up alongside supermarkets including what still remains the country’s largest and best performing Waitrose store, which first opened in 2002.

Owned by Brookfield, a Canadian asset manager, and the Qatar Investment Authority, earlier this year, the Financial Times, argued that despite its new mix of community and commercial, the current exodus means Canary Wharf still needs to reinvent itself.