Google To Lease 70,000 Sq Ft Office Space in the UK-Is It A Sign of Recovery In Commercial Leasing Space?

Summary

• The company announced its plans to lease out 70,000 square feet of space in the UK despite asking nearly 4,500 of its staff in the country to work from home until at least July 2021.
• This office space leasing exercise is in addition to the mega 330 meters long 11 stories office building being built by the company just across Kings Cross station in London
• Most of the commercial real estate experts in the country are warning that the market will continue to remain bleak for some more time

Going against the prevailing trend in the office space market, Google is considering leasing over 70,000 square feet of office space in the United Kingdom. This is in addition to the mega office building it is building opposite King Cross station in London, which is 330 metres long and 11 stories high, named as the “Landscraper” this new office will have space for 4,000 workers and will be equipped with a top roof garden, 25-meter swimming pool, indoor basketball, and nap pods. Google has been going ahead with these plans despite advising nearly 4,500 of its staff in the UK to continue to work from their homes till at least July of 2021.

The company’s decision to increase office space in the UK comes despite the fact that there is marked weakness in the commercial office space markets in the country and most of the commercial real estate experts in the country are warning that the market will continue to remain bleak for some more time.

Google’s bet on office spaces despite the trend leaning towards WFH

With this move, Google seems to be betting on the long-term prospects of the property markets and shows its optimism that the current downturn is a temporary phenomenon and would subside soon. It is worth noting here that several experts have been stating their views that though WFH has provided some immediate relief to businesses struggling with the pandemic, it is not a long term solution. There are businesses that are creative and require collaborative efforts to create value and would require an office working environment. Moreover, it is also very difficult to supervise people in a WFH setting leading to the lowering of productivity levels witnessed by the majority of the organisations in the country.

There is again the problem of security and data breach when people are working from home, which is very difficult to. Most companies who deal with sensitive data have been taking enhanced security measures to protect their data and systems against hackers and other entities with malicious intent at very high costs since the imposition of the lockdown. Getting people back to offices will help companies reduce these costs, which in many cases is higher than, the rentals of the offices their staffs used to work in.

The current change in attitude in the UK after the Coronavirus outbreak

People in the UK have become highly sceptical about coming out of their houses and joining work since the pandemic broke out in the country. The lockdown period prompted many companies to ask people to work from home and make suitable arrangements so that people do not face many challenges in delivering on their responsibilities. Over the period of the past five months, most people have become comfortable with this working arrangement and are not willing to take the risk of catching the infection by venturing out.

Moreover, people are also taking this as an opportunity to move back to suburban areas where the risk of catching the infection is relatively low, and the quality of life is high.

Let us have a lens through the stock performance of some of the commercial real estate developers.

The performance of Shaftesbury Plc since the beginning of the year (YTD)

Shaftesbury Plc is the United Kingdom-based commercial real estate developer and leasing company primarily interested in properties in London's west end. In that area, the company owns 14.5 acres area has 1.1 million sq. ft of leasable space. The company’s share are the constituent of the FTSE 250 index.

(Source – Thomson Reuters)

The shares of Shaftesbury Plc (LON:SHB) have been on the downslide on the LSE since the starting of 2020, except for a minor gain in months of June, after the lockdown was reopened. On 2 January 2020, the shares of the company were trading at GBX 933.50 per share after which it hit a minor low of GBX 594.00 per share on 19 March 2020. Thereafter the shares cooled down and hit a low of GBX 12.50 per share on 17 March 2020, after moving sideways for about three months the shares hit a year to date low of GBX 486.80 on 14 May 2020 thereafter it rose sharply to reach a high of GBX 689.00 per share within a month. The shares of the company were trading at GBX 481.60 per share on 30 September 2020 (12.55 PM GMT+1), gaining 1.71 per cent over the previous day’s close.

The performance of Hammerson Plc since the beginning of the year (YTD)

Hammerson Plc is a British property developing and leasing company. Most of the company's portfolio properties are based in the UK, but it also owns properties in Spain, Ireland, Germany, and France. The company mostly invests in office spaces and retail spaces. The shares of the company are part of the FTSE 250 index.

(Source- Thomson Reuters)

The shares of Hammerson Plc (LON:HMSO) have been on the downslide on the LSE since the start of 2020, except for a minor uptick in months of June. On 2 January 2020, the shares of the company were at GBX 141.32 per share after which it hit a low of GBX 24.62 per share on 03 April 2020. Thereafter the shares cooled down and started moving sideways for a month and a half before sharply climbing again, to peak on 03 June 2020 at GBX 62.90 per share. The shares of the company were trading at GBX 15.48 per share on 30 September 2020 (1.01 PM GMT+1), gaining 3.90 per cent over the previous day’s close.