Offices are empty – but they’re not doomed

Employees are slow to return to city centres

(Image credit: Businessman on an empty street in the City © Jason Alden/Bloomberg via Getty Images)

published 4 September 2020

“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”.

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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.

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Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.