London’s office occupiers have placed 388,000 sq ft back on the market over the course of the UK’s lockdown, according to Savills.
This has increased the total supply of tenant space available by 6.5% to 3.4m sq ft, as at 15 May. However, this is still 13.1% below a long-term average of 3.9m sq ft.
Of the space put up for subletting during lockdown, 66% accounts for offices under 10,000 sq ft. The largest amount of space derives from HSBC, which is looking to offload 65,000 sq ft at the Blue Fin Building, SE1.
Philip Pearce, head of central London leasing at Savills, noted that the space that returned to the market has mainly stemmed from companies with multiple offices across the capital, indicating an element of rationalisation. He attributed this to cost cutting and surplus space.
“I am actually quite surprised there hasn’t been more,” Pearce said. He cited the difficulty in conducting commercial property viewings during lockdown as a potential reason for this.
Furloughing is another potential factor, since it may have postponed the arrival of some space because it has “taken the pressure off company balance sheets”.
“Maybe once the scheme starts being reduced, we may see some more space, whether that be through right-sizing or corporate failure,” he said.
“Highly leveraged businesses that haven’t had any revenue for three months, even with furloughing, you just kind of run out of money eventually.”
He added: “I think the reason why it hasn’t happened yet is much to do with the focus being about getting people back into offices rather than what to do with surplus space.
“I am sure there are thousands of finance directors all wanting to take the axe to something, but chief executives and chief operating officers are going to be questioning what to do with all those people. If anything, you’ll probably need more space in the near term.”
Looking ahead, Pearce said he is not expecting a “tsunami” of tenant-controlled office space to hit the market while social distancing affects willingness to sublet space, at least until government guidance is diluted.