LONDON’S embattled office market is in “rental recession” as volumes of empty space across the capital’s West End, City and Canary Wharf business districts hit a 30-year high, analysts at Jefferies said on Wednesday (Sep 27).

In a note downgrading Land Securities, British Land, Derwent London and Great Portland Estates, Jefferies estimated a 20 per cent contraction in London office usage due to post-pandemic hybrid working and increasing occupier preference for greener buildings in the suburbs.

“Retail was technology’s first casualty and we think offices are next. Utilisation has shrunk and landlords are losing pricing power as tenants offload surplus space,” the analysts said.

Jefferies estimated West End vacancies of 7 per cent, with rates in the City and Canary Wharf at 10 per cent and more than 20 per cent respectively, with the tipping point for a rental recession historically around 8 per cent.

At more than US$36.43 a square foot, Jefferies said rents achieved by warehouse landlord Segro at logistics company Park Royal were likely now higher than the market rate at Canary Wharf, home to several major financial tenants including Barclays, JPMorgan and Morgan Stanley.

Long-term Canary Wharf resident HSBC recently announced it would be relocating to the City but is expected to lease 30 per cent less space at its new home, according to the note.

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“Investment market liquidity is receding on rent uncertainty and squeezing developer profits,” the note said.

“London Reits appear cheap, but are probably not good value.” REUTERS