London office rents are projected to fall by 40% before hitting their bottom level, as rental values slide because of stalled deals, increasing vacancy and lease breaks.
According to global membership body the Society of Industrial & Office Realtors (SIOR), leasing activity in the capital has fallen by 57 percentage points compared with the previous quarter.
The largest declines in rents have occurred in some of London’s most well-to-do areas, such as Mayfair (-8%) and Soho (-8%). Industry experts said the trends were producing a shift in power in commercial property world. “This sudden increase in availability is already prompting a swing in the balance of power back towards the tenant,” SIOR Europe president-elect Paul Danks said.
Earlier this month, the Royal Institution of Chartered Surveyors’ quarterly survey saw respondents predict sharp falls in office rents and capital values nationwide. Most (93%) expected businesses to rein in their space requirements over the next two years. About two-thirds of those surveyed thought there would be an accelerated migration from city centres to the suburbs. The survey showed that overall confidence levels for sales and rents over the next quarter were weaker than during the 2008 financial crisis.
Analysis from McCalmont-Woods Real Estate showed that, though London’s prime office rents saw a decline of between 9% and 21% over the first 12 months of the global financial crisis in 2008, it was another 12 months before the market hit bottom, when prime rents fell between 16% and 39%.
Nick McCalmont-Woods, chief executive of the independent property agency, said that as the recession deepened in 2009 “landlords were persuaded to offer far more competitive terms to attract a dwindling pool of occupiers”.
He said his firm expected the pattern of rental decline over the course of the Covid-19 pandemic to repeat that of the global financial crisis, and, “if anything, it may be exacerbated further in the event that significantly more tenant/occupier-controlled space is released back on to the market as businesses adopt new working practices in the long-term”.
McCalmont-Woods predicted considerable uncertainty ahead with the real impact of the pandemic not being seen on rental levels before the fourth quarter of 2021 or the first quarter of 2022.
Meanwhile, accounting giant PricewaterhouseCoopers and UK-based asset management company Schroders have announced they will allow most staff to continue to work from home after the Covid-19 pandemic.
PwC has forecast that most of its 22,000 UK employees will move to a more even split of home and office working on a permanent basis. Chairman Kevin Ellis said: “There’s no question that lockdown has done away with presenteeism. It’s shown many business leaders that their people can be productive, engaged and happy working from home.” The company is aiming to have its offices at 50% capacity by the end of September.
Schroders said it was revamping its flexibility policies and has told staff they won’t have to return to the office full time even after the pandemic has passed.
Head of human resources at the firm Emma Holden said: “Rethinking the rulebook on flexibility will ultimately prove a huge shot in the arm for productivity in the long term.”
Until the end of March and the onset of lockdown, staff at Schroders could work remotely one day a week. Under the new plan, they will be free to agree working patterns with their managers, with no set expectation of a number of days in the office.
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