A quarter of London companies downsize offices for flexible work

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London businesses are shrinking their office footprints and giving up traditional long leases as the pandemic-induced shift to flexible working settles in.

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A quarter of companies are downsizing office holdings and a further 18 percent are opting for coworking and flexible office spaces, according to a survey of 500 London workers conducted by Bloomberg Intelligence.

This trend is helping drive up vacancy rates, and is increasing the gap between rental prices in highly sought after new spaces and less desirable older buildings, Bloomberg Intelligence analysts Sue Munden and Sirine Bouzid wrote in a note on Thursday.

The long-term impact of the sudden work-from-home experiment ushered in by the pandemic is starting to become clear as more office leases approach expiry and workers prove reluctant to return.

While office occupancy levels have slowly increased from their pandemic lows, the survey results suggest that more businesses are accepting that flexible work is here to stay.

“The work-from-home era is polarizing vacancy and rents between prime space owned by real estate investment trusts, such as Derwent London Plc and Land Securities Group Plc, and secondhand space,” Munden said.

In total, 73 percent of respondents said that their business planned to move or had already moved to new premises, up from 50 percent in June. That’s leaving a lot of older buildings unoccupied, with vacancy rates in some central London districts now above 10 percent even as the supply of sustainable office space remains severely constricted.

The survey also found that 70 percent of respondents’ employers have formalized a permanent policy around flexible working, while the remaining 30 percent are still unclear on their plans after this year.

This shift to more flexible working is encouraging landlords such as Great Portland Estates Plc and British Land Co. to offer both long leases on modern green buildings as well as short-term contracts for more flexible spaces.

The high cost of labor relative to office rent is also prodding companies to invest in spaces that will help attract and retain staff.

That has put a premium on buildings with more amenities, in the most prized locations, that can also help companies meet their carbon reduction targets. These buildings, which are in short supply, can still command top rental prices.

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