Office stock in England is shrinking at the fastest rate in 20 years as new construction slows and employers cut back on offices that remain only half full due to working from home.
Nearly 20 million square feet of workspace was lost in the year to the end of March – just over 2% of the total market – according to an analysis of business pricing data by the Boodle Hatfield law firm.
This is the largest annual decline since this data was first collected in 2001.
The contraction comes as employers consider how much space they need in the post-pandemic world and accelerates a trend that has seen overall floor space shrink by more than 6% since 2014.
Occupancy rates in UK offices have gradually increased after pandemic restrictions were lifted this year, but are around half of pre-Covid levels, according to property consultancy Remit Consulting.
Nationally, occupancy is stuck at around 30%, the company said, compared to typical levels of around 60% before 2020, according to the British Council of Offices.
After waiting to assess how work patterns would change post-pandemic, many employers are now taking action.
Law firms Clifford Chance and Reed Smith both confirmed plans to move last week, striking deals for smaller buildings with better environmental credentials – a growing consideration as new emissions regulations come in. put in place.
“Clients are renting space for their work models of tomorrow, not yesterday,” said Toby Courtauld, managing director of London-based developer GPE, which will be the new owner of Clifford Chance after the new headquarters are completed. of the company in 2025.
‘When Clifford Chance first rented at Canary Wharf 20 years ago the ways of using offices were totally different, things have evolved,’ he added.
The amount of office space available at Canary Wharf has increased sharply during the pandemic, from around 2.3 million square feet to nearly 3.5 million square feet, according to real estate data firm CoStar.
Clifford Chance’s move to the city will leave the Canary Wharf group with an additional 500,000 square feet to fill.
Developers in the capital are increasingly pessimistic about the strength of demand and expect office space needs to fall by at least 10% following the shift to hybrid working, according to a survey published Monday by Deloitte.
Declining demand, coupled with higher development and borrowing costs, has caused developers to delay new projects across London, according to Deloitte.
This will reduce supply, but there will still be plenty of excess space as businesses fold. The government has encouraged the conversion of unused office space into housing, but industry is skeptical.
“My observation would be that this may be easier said than done,” said Margaret Doyle of Deloitte.
“There may be practical difficulties that make it less of a silver bullet than one would like. It may look like a very elegant solution to a housing shortage and a change in working patterns, but it would require falling values and people happy to live in an office park.