Insights

Empty offices as hybrid working normalised

With concerns about the ongoing viability of co-working office space giant 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.

With thousands of employees either working fully remotely or commuting into the office for just a few days a week, large corporations have been rethinking their physical office space requirements.

WeWork is said to be looking to renegotiate nearly all its leases around the world after it warned there was ‘substantial doubt’ about its future. WeWork told landlords it was expected to exit some underperforming locations as it looks to reduce costs of property leases in its portfolio.

Earlier in the 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 since the introduction of flexible working practices.

Whilst the tech giants like Google and Meta have led the charge demanding its employees return to their desks, it is perhaps proving more difficult to negotiate the apparent changed mindset of the post pandemic workforce.

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 work spaces 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.

Interestingly though, the vacant office space could well be heralding new cultural uses. A report in the Financial Times suggested every quarter of a century or so buildings are often repurposed. Think of old industrial units like warehouses and power stations which have been transformed every which way including arts spaces and homes, well now it’s the turn of offices.

The FT points to two recent examples which embodies this trend - The @Sohoplace theatre, the West End’s first new-build theatre in 50 years, opened last year, and earlier this year the Lightroom, opened in an office block in Kings Cross, enabling visitors to experience large projections of David Hockney’s art.

The report suggests vacant office space and an arts sector struggling for funds makes them inevitable bedfellows but whether we will see an abundance of cultural projects taking up residence in empty offices across the capital or even in other cities remains to be seen.

However, what does seem certain, is that despite corporates demanding their staff return to the office, employees seem resolute that they won’t be undertaking the commute five days a week. If and it does seem likely, hybrid working is here to stay, we could be seeing more companies reevaluating their office leasing needs.