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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

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Categorized | Property

Office space for 21,000 workers sublet by UK businesses

Posted on November 23, 2016

Enough office space for about 21,000 workers is being offered for subleasing by businesses shrinking their London footprints, increasing pressure on landlords and rent levels in the city.

More than 2.1m square feet of office space was being marketed in October for subletting by office tenants including banks and technology companies, according to BNP Paribas Real Estate.

That is up from less than 1m sq ft at the start of this year, and is the highest level since BNP Paribas began tracking tenant space at the start of 2015. Sub-leases currently account for 17 per cent of all the office space available to rent.

“A number of tenants have put meaningful amounts of space on the market at the same time, and this presents occupiers who are looking to move with a bit more choice,” said Dan Bayley, head of central London office agency at BNP Paribas. “It is certainly noteworthy over the last quarter.”

Mr Bayley said subleases tended to offer more flexible terms than conventional leases, opening up competition with landlords. This will have “some impact on pricing” across the market, he said.

A greater spread of rents is likely as tenants become more choosy about the quality of the buildings they lease, said Alistair Subba Row, senior partner at the property advisers Farebrother. But he added: “History has shown that when markets go through a period of change, there can be a general race to the floor in terms of rents.”

Take-up of new offices has been subdued since the Brexit vote, and so far this year has been 30 per cent below the figure for 2015 as some companies delay office moves until the shape of the UK’s EU departure becomes clearer.

Some of the space being sublet is by banks seeking to cut costs in an era of low yields and tighter regulation. For example, Deutsche Bank is looking to sublease 126,000 sq ft at 1 Appold Street near London’s Liverpool Street station, while Citigroup in October began marketing 96,000 sq ft at 25 Canada Square in the capital’s Canary Wharf.

Another financial services group, insurance company Swiss Re, is offering 85,000 sq ft in the “Gherkin” tower in the City of London.

Other companies offloading office space are doing so because of mergers and acquisitions — for example, Microsoft is subleasing 89,000 sq ft after closing the London headquarters of Skype, which it bought in 2011. The professional services group Willis Towers Watson, formed by a merger this year, is subleasing a former Towers Watson office.

Vacancy rates for central London offices increased to 5.8 per cent in the third quarter of this year, up from 4.7 per cent in the first quarter but still below the 10-year average of 7 per cent, BNP Paribas said.