Offices are empty – but they’re not doomed

The sudden shift to working from home has left some 75% of office buildings empty. But reports of the commercial property sector's death may be premature.

“Once-bustling European office blocks resemble ghost towns,” says Aimee Donnellan on Breakingviews: some 75% of buildings are empty. And this sudden shift to working from home that’s been forced on employers by the Covid-19 lockdowns “has created a new reality in the office rentals market”. In the UK, the “old standard of ten-year leases” – with rents that were only adjusted upwards – “has been abandoned”: new leases are for as little as three years. 

Now companies such as accountants PwC, social-media network Twitter and asset manager Schroders “are suggesting that this is set to be far more than a down cycle in rents”. They predict “a new era in which working from home is standard”, meaning lower long-term demand for offices. But that may be a leap too far. “Lower rents don’t necessarily presage a property revolution”.

Quite, says Nils Pratley in The Guardian. It’s too early to conclude that productivity will be the same when everybody is working from home in more normal times. Or that stay-at-home employees will feel sure that they are being noticed for promotion if they are not under their manager’s eye. Before deciding the office is dead, “let’s see what happens when the novelty wears off”.

So it’s striking how much pessimism “is already baked into share prices” for property firms, says Bryce Elder in the Financial Times. In the UK, Land Securities and British Land are down by more than 40% this year. “Deciding whether these moves are overreactions demands considerable guesswork”, but so far demand for prime office space in London remains resilient – not least because firms need to be able to space staff out until a vaccine arrives.

With these stocks at such steep discounts, any private-equity funds that don’t share the “doomsday views” about the sector “are highly likely to be taking an interest” in them. 

Recommended

The coronavirus is scary – but it's irrelevant to your investments
Investment strategy

The coronavirus is scary – but it's irrelevant to your investments

The spread of the coronavirus is causing alarm around the world. And, while it could be a serious short-term threat to human health, it’s not somethin…
24 Jan 2020
How to make sure your business doesn't lose out in lockdown
Small business

How to make sure your business doesn't lose out in lockdown

Money is still available via government schemes to help small companies cope with the latest Covid restrictions. David Prosser outlines what you can g…
16 Jan 2021
Leasehold reforms promise the end of a nightmare for many homeowners
Property

Leasehold reforms promise the end of a nightmare for many homeowners

Horror stories about unscrupulous landlords profiting from a legal relic of the feudal era are about to get a happy ending, says Simon Wilson.
16 Jan 2021
Plenty more Brexit arguments to be settled yet
Brexit

Plenty more Brexit arguments to be settled yet

Many important negotiations remain to be sealed in our deal with the EU. “No deal is better than a bad deal” is the way to play it, says Matthew Lynn
10 Jan 2021

Most Popular

A simple way to profit from the next big trend change in the markets
Investment strategy

A simple way to profit from the next big trend change in the markets

Change is coming to the markets as the tech-stock bull market of the 2010s is replaced by a new cycle of rising commodity prices. John Stepek explains…
14 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
Here’s why markets have shrugged off the US political turmoil
Investment strategy

Here’s why markets have shrugged off the US political turmoil

Despite all the current political shenanigans in the US, markets couldn’t seem to care less. John Stepek explains why, and what it means for your mone…
7 Jan 2021