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
Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
29 September 1829: London’s bobbies pound the beat for the first time
This day in history

29 September 1829: London’s bobbies pound the beat for the first time

On this day in 1829, the first of London's 'Peelers' hit the streets as the Metropolitan Police Force began its patrols.
29 Sep 2020
Beware: even the greatest brands can fail
UK Economy

Beware: even the greatest brands can fail

For decades, John Lewis seemed to exist in a parallel universe. Now, a grimmer reality has dawned
27 Sep 2020

Most Popular

Investors are shunning UK stocks – but they might regret that in a year’s time
UK stockmarkets

Investors are shunning UK stocks – but they might regret that in a year’s time

There are a number of reasons why investors aren't buying UK stocks, says John Stepek. But they may want to rethink that strategy.
29 Sep 2020
Are we really in a stockmarket bubble?
US stockmarkets

Are we really in a stockmarket bubble?

The rise of “cash shell” companies, sky-high valuations – everything seems to point to a stockmarket bubble. But all may not quite be as it appears, s…
28 Sep 2020
How the stamp duty holiday is pushing up house prices
Stamp duty

How the stamp duty holiday is pushing up house prices

Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb…
25 Sep 2020