New figures coming out of the U.K. show how changes in the workforce are challenging some of the largest markets in the world. London’s office market is feeling the adverse economic effects of remote and hybrid work, with office vacancies reaching a 30-year high, according to reports from Reuters and CNN Business.
Investment bank Jefferies published in a note Wednesday saying there is a “rental recession” in the U.K. capital, with the City of London and West End recording vacancy rates of 10% and 7%, respectively. Canary Wharf, a financial district, has vacant units exceeding 20%, according to CNN Business. Central London’s vacancy rate was 8.6% in 2022, according to data published by Statista.
This surge in empty office spaces is reminiscent of 1993, a period when the U.K. economy faced a recession and the real estate market crashed. The current rise in vacancies is being attributed largely to the rise of remote and hybrid work models — which have persisted for over three years since the beginning of the COVID-19 pandemic. Jefferies estimates that there has been a 20% decline in office utilization since the end of 2019.
The widespread adoption of flexible work environments is causing landlords in the U.K. to lose pricing power, with notable tenants offloading surplus office space. One tenant that made such a move recently has been tech giant Meta. The company recently paid £149 million to break its lease on a 310,000-square-foot office near London’s Regent’s Park, although it will continue to rent another nearby building, according to reports. This move, along with HSBC’s decision to relocate from its Canary Wharf headquarters to a smaller building, shows how the demand for traditional office spaces is dramatically impacting large metro areas.
These changes have raised concerns among regulators, who fear that spiraling vacancy rates and declining rents in the U.K. could trigger the next financial crisis. Banks that have loaned to developers might face significant losses due to plummeting property values.
Changes in the way professionals and businesses work are dramatically affecting London’s office landscape. As more businesses adapt to new working models, the demand for traditional office spaces may continue to wane, impacting the broader real estate market even more deeply.