Demand for London office space is crashing amid a rise in working from home since the pandemic, Goldman Sachs are warning people. Deal making in the industry is at “near global financial crisis-lows”, said the investment bank’s analysts, led by Jonathan Kownator., suggesting that they are becoming more cautious on the outlook for London office capital values.
More than 14% of the capital’s floorspace is already empty, a 5% rise since the pandemic and this is only expected to rise. So far the majority has not been let, raising the prospect of new buildings standing empty. The last time so much office space was built, back in 2003, rents sank as landlords struggled to find tenants.
Even considering these weak levels, there are further questions being asked about the sustainability of current demand levels in general. Higher interest rates are also pressuring the finances of developers, potentially pushing some to sell off properties to reduce their debts.
In addition, the capital’s office districts have been hit harder than most parts of the country by the shift in working patterns prompted by the pandemic.
Businesses occupying the under-used office blocks appear to have few plans to refill the skyscrapers with workers any time soon with research suggesting almost one-third of companies still intend to use more home-working than they did before Covid struck (ONS, 2023). This is down from a peak of close to 40% recorded a year ago, but indicates hybrid working is settling into a long-term pattern.
