London's beleaguered office market is grappling with a "rental recession" as the amount of unoccupied office space in key areas like the West End, City, and Canary Wharf

reaches a 30-year peak, according to analysts at Jefferies, as reported on Wednesday (Sep 27).

In a note that included downgrades for Land Securities, British Land, Derwent London, and Great Portland Estates, Jefferies projected a 20 percent decline in London office occupancy. This decline is attributed to the shift towards hybrid working arrangements in the post-pandemic era and the growing preference among occupiers for environmentally friendly buildings located in suburban areas.

Jefferies analysts stated, "Retail was technology’s first casualty, and we think offices are next. Utilization has shrunk, and landlords are losing pricing power as tenants shed excess space."

Jefferies' estimates indicate West End office vacancies at 7 percent, with City and Canary Wharf rates standing at 10 percent and over 20 percent, respectively. Historically, a rental recession typically occurs when vacancies hover around the 8 percent mark.

The report noted that warehouse landlord Segro had achieved rents exceeding US$36.43 per square foot at the Park Royal logistics site. These rents are likely higher than those currently prevailing at Canary Wharf, home to major financial institutions such as Barclays, JPMorgan, and Morgan Stanley.

Notably, long-standing Canary Wharf tenant HSBC has announced plans to move to the City. However, it is expected that the bank will lease 30 percent less space at its new location, according to the Jefferies note. Photo by Phil Whitehouse, Wikimedia commons.