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In An Uncertain World, Occupiers Are Buying Their Own Offices

Citi will spend £100M to refurbish its Canary Wharf office.

A spate of corporate occupiers buying their offices to better control their workspace in the post-Covid-19 world is one of the key trends to emerge in London offices in recent months. 

Both Google and marketing giant Omnicom have beaten off competition from real estate investors, paying big prices for spaces they occupy in the past few months. Omnicom paid £440M for its offices in Southbank, while Google paid almost £800M for a building where it is the largest tenant in the Central Saint Giles area of the West End. Both firms are decanting staff from other buildings into one location.

Citi bought its Canary Wharf office in 2019, but it said last month it would spend £100M to refurbish the 1M SF tower to make it fit for modern ways of working.

In its Q4 Central London office report, Gerald Eve said it expected other occupiers to make similar moves. Occupiers buying offices was one of the market trends it identified, alongside developers buying secondary assets in core locations to refurbish and re-let them. It also found an uptick in office take-up being driven by occupiers taking the best quality space with strong ESG credentials. 

Gerald Eve said there was 3.2M SF of new leasing in London in Q4, on a par with the pre-pandemic five-year average. The numbers meant that London vacancy dropped from 9.4% to 8.7%. It said pre-lets of new buildings were focused on properties with BREEAM excellent or outstanding scores, as occupiers looked to take only the best-quality office. 

The report indicated that for poorer quality offices, both rents and capital values were likely to fall, hindering returns for owners, but offering an opportunity for new owners to buy and refurbish buildings. 

Examples of developers buying assets to refurbish include Derwent’s purchase of 230 Blackfriars, and Dorrington buying a building at Temple Chambers in the City.