London Office Stocks Too Bullish About Reopening, Barclays Says

(Bloomberg) -- London office landlords’ stocks are pricing in too much optimism about the positive impact the reopening of the economy will have, according to Barclays Plc analysts.

Recent comments from companies in the sector and surveys conducted by Barclays in late 2020 show the downturn in London offices that started last year “could be structural rather than cyclical, with permanently lower London-office demand due to work-from-home,” analysts including Paul May wrote in a note to clients.

Office take-up in London collapsed in 2020, vacancy rates have doubled and available space is close to a 20-year high, which is resulting in prime office rental rates and asset values falling, the analysts said. Despite this, London landlords have generally outperformed in the past six months. The bank double-downgraded its rating on flexible office space firm Workspace Group Plc.

Companies are increasingly altering their policies on staff working from the office in the wake of a pandemic which has forced many to stay at home. Consumer-goods giant Reckitt Benckiser Group Plc on Friday said it will not mandate how many days staff have to work in the office. JPMorgan Chase & Co. is likely to adopt a more flexible working policy in the capital, Co-President Daniel Pinto said in a Bloomberg interview.

A recent Morgan Stanley survey showed the demand to work from home among employees has remained stable at two days per week, though this has fallen since polls the bank carried out last summer.

Jefferies Inc. analysts said earlier this month that London office pricing is being impacted by environmental, social and governance considerations. Offices which are rated highly for energy efficiency and wellness credentials are being rented at a premium, the broker said.

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