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Fitch: Shared Workspaces Could Shrink Central London's Office Market Value by 25%
June 6, 2017 / 8:35 AM / 5 months ago

Fitch: Shared Workspaces Could Shrink Central London's Office Market Value by 25%

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Disruptive Technology: UK Shared Workspaces here LONDON, June 06 (Fitch) Working remotely from suburban shared workspace allows savings to be unlocked for service sector employers and their employees but could see the value of central London's office market fall by as much as 25% over 10 years, Fitch Ratings says in its latest report on disruptive technologies. In London, remote work is enjoying strengthening tailwinds from wider cultural, political and technological forces. Firms that adopt this are able to downsize expensive office space, the effect of which on central London office markets could see as much as 25% eventually being shaved off aggregate value. Fitch does not expect major credit implications, however, as most lenders will have lead time to adjust underwriting before the full effects would be expected to feed through. In our 10-year "disruptive case" analysis we assess the impact of 332,500 central London employees moving into shared workspaces on a routine basis. Such a transition, we believe, would be staggered by the rate of lease roll-offs among employers amenable to changing work patterns. Without a sudden reduction in occupancy, central London office markets are likely to remain under-supplied, underpinning very high rents - and therefore the basic push factor out of the centre. This also suggests London's central business district (CBD) could become gradually more available for uses besides offices. Many service sector firms are already adopting flexible office arrangements to reduce fixed costs, facilitate expansion or consolidation and cater for growth in project-based contingent work. Economic uncertainty and changing accounting standards both favour lease flexibility associated with third-party flexible workspace. As firms in central London downsize requirements, headquarters are being designed on smart, flexible formats. So-called "agile" formats catering to hot-desking, bookable rooms and shared facilities are being incorporated into some of the new grade A office developments. The main barriers to remote working are cultural, not technological. Cloud-based solutions, IP-based business phones and an array of mobile devices supporting secure network access technology all cater to remote work. Yet few large firms have promoted remote work at scale, with the UK lagging its European peers in rates of routine homeworking. Shared workspace can overcome some concerns with homeworking, among both employers and employees. And as millennials rise up the ranks we predict business culture will evolve, lowering cultural barriers. The range of potential benefits from working nearer home is wide. Commuting places a great strain on London's transport, air quality and housing, which a suburban model of shared workspaces can ease. Moreover, local economies would be further boosted by greater disposable income and leisure time being spent in the suburbs. The extra 20 million-25 million square feet of offices needed in our projections or 1.5x-2x London's Victoria office market, reversing decades of suburban attrition, would act as a direct economic stimulus besides "crowding in" local retail and leisure investment. We believe local authorities will play a broadly supportive role in this roll-out. For employees, routine work from shared workspaces near home offers the prospect of far lower commuting times and costs. While housing in more remote locations should also become more attractive, it should leave the number of residents in inner London broadly unchanged. The market rental premium inner London commands over outlying suburbs would be trimmed, but without a surge in suburban development we do not expect any negative effect on house prices to exceed 10%. Demand for flexible workspace stock is rising, not just in the centre but now also in London's suburban orbital areas. This is driving double-digit yoy growth in supply, and we estimate market share will grow sharply from its current 5%. A scaled-up and distributed workspace model ought to appeal beyond homeworking by providing professional technology and improved facilities while also fulfilling the basic human need for stimulation from face to face interaction. Workspace that offers a range of formats - including traditional B2B serviced offices and cubicles through to B2C membership-based open-plan hot-desking (co-working) - should address most businesses' concerns around data confidentiality. Such hybrid workspace is now seeing an uptick in supply, and as it disperses across London we believe it can attract users outside central London's ranks of freelancers and SMEs. For more information on the implications of remote workspaces, see "Shared Workspaces Can Boost London Suburbs" published today and available at or by clicking the link above. Fitch's disruptive technology series also includes reports on Batteries and Big Data. Contact: Euan Gatfield Managing Director +44 20 3530 1157 Alan Adkins Group Credit Officer +44 20 3530 1702 Peter Wormald Analyst +44 20 3530 1357 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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