Across the UK capital, the equivalent of 60 Gherkin skyscrapers is lying empty. As the number of empty spaces in the West End, City, and Canary Wharf business hubs hit a 30-year high, financial services company Jefferies said in a note that the capital’s office market is suffering an office recession. It added that there had been a 20 percent contraction in London office usage as working from home and hybrid working continue to be priorities. The New York-based firm also estimates that vacancies have passed the tipping point where rents typically begin to fall, meaning landlords have lost pricing power.
The vacancy rate is a severe concern for property owners, investors, and tenants as it means companies that have returned to their offices are not filling their space. It is also not a good sign for the broader economy, which relies heavily on commercial real estate and the jobs that come with it.
In light of the challenges, the industry has developed several innovative solutions to help address the issue. One example is a workspace in central London that promotes healthy work habits by providing an environment that supports the “work-life balance.” The 385,000 sqft facility features a 1.1-acre rooftop forest, a gym, and a variety of wellness amenities like a bike store, events room, and potting shed. In addition, there are biodynamic and sustainable landscaping designs and a water capture and irrigation system that helps to support local wildlife and biodiversity.
These types of facilities will continue to be a trend in the future as businesses look for ways to attract and retain workers during this time of transition. A recent study found that a sustainable building can be rented for higher prices and yields than conventional buildings, with BREEAM-certified green properties in the highest demand. Additionally, a green office can increase employee satisfaction and productivity by positively impacting the environment.
Oliver Knight, head of workplace at Land Securities, previously said, ‘ The office has to be more than simply a place to sit and do work.’ He explained that people will spend their time in an office if it offers something they can’t recreate at home, such as access to social and networking activities.
However, it needs to be clarified how long the current office recession will last and whether a recovery is in sight. Despite the swaths of vacant space, office landlords like British Land (BLND), Landsec (LAND.L), Derwent London (DLR.L), and Helical (HLCL) are still managing to maintain their rents at a pre-pandemic level or even slightly lower, according to data from real estate consultancy Carter Jonas. Its research found that prime London net effective rents are only around 1% below their peak pre-Covid-19 levels. That could mean that office landlords have to offer many incentives for their tenants to get them back into the building.