Big banks and other financial services groups were among the first to hint at plans to shed office space last year, as Covid-19 lockdowns triggered a greater shift towards remote working.
A year on, some of the UK’s best-known banking occupiers now look set to vacate millions of square feet of office space in London and other cities in the next few years, underlining how the pandemic is reshaping real estate requirements.
HSBC is aiming to slash its global offices footprint by around 40%, as part of its bid to reduce operational costs by $1bn (£710m) by next year.
A number of HSBC’s global business heads will be moved from the UK to Hong Kong, its biggest market, as it turns its broader focus towards Asia for future investment.
Meanwhile Lloyds Banking Group is aiming to ditch 20% of its office space by 2023, including an 8% reduction this year.
Lloyds said that around 45% of its office leases are expiring over the next five years, creating “new opportunities” for managing costs. It added that more than three quarters of its employees want to continue working from home for three or more days per week in the future.
Moves to retreat from office spaces have in turn cost the banks millions of pounds in the past year.
Among these, Lloyds incurred £146m in head office and branch rationalisation costs, while Natwest incurred a £256m charge relating to its office disposals. The latter included the permanent closure of Natwest’s Regents House office in Islington, N1, last summer.
High street lender Metro Bank’s “accelerated” exit from its Old Bailey office, EC4, ended up costing the bank around £40.6m. It is currently reviewing ways to convert surplus space in its existing store network into offices, and has set up a new operations centre at its Bristol store as part of this strategy.
The pressure is clearly on for the UK’s office landlords, as the banks pare back their office portfolios to offset their pandemic-driven losses.
Figures from Radius Data Exchange show that leasing activity from financial services occupiers in London alone has dropped in the past year, accounting for 16.7% of take-up in the capital last year, down from 20.4% in the previous year.
Some 16.6m sq ft of central London office space already lies vacant across all occupier types.
However, other real estate opportunities may well emerge in other sectors for the banks. Having identified opportunities to take advantage of declining retail property prices, Metro Bank said it bought the freeholds for three of its high street stores in 2020.
The bank said this allowed it to make acquisitions either at, or close to, the carrying amount of their right of use asset – meaning “only a marginal upfront capital impact in exchange for longer-term run rate savings and flexibility”.
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