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UK office landlords may not see immediate threat from hybrid work -Citi By Reuters


© Reuters. FILE PHOTO: The Westferry Printworks construction site can be seen in London with Canary Wharf in the background. This was taken in London, Britain on June 25, 2020. REUTERS/John Sibley

(Reuters) – The hybrid working model may not be an immediate threat for British commercial landlords as corporate decisions on space requirements are taking longer than first thought, a Citigroup (NYSE:) analyst said on Tuesday.

Although the brokerage company raised its Land Securities ratings from “sell to neutral”, it said British Land could be slowing down as hybrid work models will continue to evolve.

Aaron Guy, Citigroup analyst, stated that London’s drive to get back to work is much slower than anticipated. Corporate decisions regarding long-term space needs are also taking longer than expected.

Guy said that while remote work is likely to reduce desk occupancy by 50%, it could also lead to lower rents and lower demand in the long-term.

The COVID-19 epidemic has already caused a steep drop in commercial landlords’ rental incomes and decreased footfall at stores.

Guy stated that businesses will adapt to more flexible working models and may continue to use existing office spaces even after new designs are established, flexible technology has been tested, new offices are found, or existing spaces are refurbished. It could take several years for this process to complete.

Guy stated that there are still risks to office space demand that may drop by 40% or 30% and that office rents could rise by 30%. However, Guy noted that such a possibility will not be realized immediately.

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