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Is London’s office market showing signs of life as companies begin a tentative return to work and lease new space ahead of the much-hoped for beginning of the end of the pandemic? Workspace Group (WKP), which offers flexible offices and studios at 58 locations across London, will certainly hope so.
It says new customers are starting to come back to its offices and workspaces, strategically located in the heart of the capital’s most vibrant, entrepreneurial and youthful districts, showing figures that it says demonstrate new customers picked up strongly through the fourth quarter. It had, on average, 910 enquiries and 111 monthly lettings during the last three months of its financial year. And that gained momentum, with 150 new lettings agreed in March; more than double the 71 in January.
Crucially, it insists this momentum has continued into the first quarter of its new financial year. It says that overall, as government restrictions have eased, use of its business centres has also increased, reaching 20% of pre-Covid levels by the end of March and increasing to 30% by the end of April.
It is, of course, no secret that commercial landlords have struggled during the pandemic. Directly impacted to such a large extent to the fortunes of its tenants, landlords whose portfolios of properties sit in the retail or office space sectors, have felt the full force of the lockdowns.
Landsec, which owns shopping centres including Bluewater and the Bon Accord Centre in Aberdeen, last week reported a loss of £1.4 billion, from a loss of £837 million in 2019.
And releasing its annual figures, it admitted it had still not made up its mind about whether to press on with a £195 million office-led scheme in Southwark because of the impact of the pandemic on the demand for office and retail space. Then just this week, British Land, one of the UK’s largest landlords, revealed it has seen the value of property holdings fall more than 10% to £9.1 billion over the past 12 months.
However, the impact of lockdown did not fall evenly across the company’s portfolio, which includes Broadgate, a large office complex in the City of London. And amid the gloom perhaps a vague glimmer of hope - offices lost 3.8% of their value in the period, the company said on Wednesday, but shopping centres lost close to 10 times as much, down 36%.
Pressures on rental income is something all landlords will have felt over the past year though. Workspace Group says cash collection has continued to be “robust”, with 92% of rent due for the fourth quarter of 2020/21 now collected. It said the majority of its customers pay monthly and it had to date collected 84% of rent due for the first quarter of 2021/22, in line with the level of rents collected at the same point in previous quarters.
But tenants’ demands too have shifted over the past year. A recent survey conducted by property agent Knight Frank suggested coronavirus had emphasised the importance of offices as collaborative spaces that support employee wellbeing, rather than environments designed to maximise productivity. And this is something that Workspace is aware of.
Flexible agreements and convenient rolling six-month break clauses, enabling occupants to “scale up, scale down or move across our locations as you like” are now de rigeur.
Chief executive Graham Clemett, said: "It has become obvious that the pandemic is creating a new paradigm in the way people work. It is early days, but with increasing demand and a reduction in customers vacating, we are now seeing occupancy stabilise and anticipate a recovery in occupancy levels at our centres during the current financial year.”
Whether it is a question of work space that needs revising or rents reviewing, for a business that relies on people not working from home; something that so many have been forced to do for more than a year now, the even bigger question is whether these business owners and entrepreneurs will come back, or simply make do with whatever they have been making do with for the past 14 months.
To have a shot at rebuilding its business, Workspace undoubtedly needs a clear run at it. And that is something that has been a huge obstacle so far, thanks to the on/ff nature of the lockdowns.
If that trend continues, it will hurt Workspace. It already made a loss of £110 million in the first half of its financial year, compared to a profit of £99 million in the same period in 2019. Net rental income for the period dropped to £36.5 million, down 39% on the same period last year and that was with rental discounts of £19.9 million propping up contracts.
While Workspace Group acknowledged there had been an increase in customers vacating and downsizing due to Covid-19, with like-for-like occupancy falling by 7.8% to 85.5%, it has also been keen to highlight what it has called “several positive signs” since the first lockdown. These include strong levels of rent collection, with 95% of rents due for the first half received as at 2 November 2020, net of discounts and deferrals and “significant improvement” in new customer demand, reaching near pre-Covid levels in September.
Whether the easing of lockdown two sparked the same sort of bounce-back will be clearer when Workspace Group announces its final results for the year ended 31 March 2021 on Thursday.
More on Workspace Group (WKP)
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