ARE - With HSBC's Canary Wharf exit commercial real estate meltdown expected to drag on
2023-08-07 08:33:05 ET
The commercial real estate market has been facing multiple headwinds, ranging from the post-pandemic work-from-home model to rising defaults for commercial mortgage-backed securities.
Even as the hybrid work model becomes more popular, large office spaces still remain vacant, pushing businesses to shift to smaller and less expensive properties.
HSBC ( NYSE: HSBC ) is planning to shift its global headquarters from London's Canary Wharf to much smaller offices in the City of London in 2026, as it cuts its worldwide office footprint by ~40%. HSBC, which set up shop in Canary Wharf in 2002, is looking to move into British telecom firm BT's former headquarters.
"HSBC ( HSBC ) is showing foresight by using the move to hybrid working to allow it to have a smaller, greener, more flexible headquarters," said Andrew Mawson, managing director at workplace consultancy AWA.
The move will likely deal a blow to the Canary Wharf hub, which is already saddled with mounting debt and may be forced to sell some assets at a discount to help it deleverage.
Office markets continued to see heightened uncertainty during Q2, according to real estate firm JLL, with global office leasing volumes down 14% Y/Y. The global vacancy rate rose 30 basis points to a record high of 15.6% in Q2.
"Leasing activity is likely to remain subdued as economic growth slows in major markets through H2 2023," it said . "Accelerating return-to-office mandates, upcoming lease expiries and lower renewal rates will provide additional impetus to demand for new, high-quality space."
More than 20% of office space has been vacant in the U.S., according to Morgan Stanley. "We expect commercial real estate to underperform on a relative basis in the near-to-intermediate term," said strategist Scott Wren.
Even so, U.S. companies are looking to lure workers back to offices ., while Zoom ( ZM ) - one of the biggest beneficiaries of the remote work revolution - is shifting to a hybrid work model .
More on office real estate
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- Financial regulators urge lenders to work with borrowers on CRE stress
- CRE Gets Messier: Office CMBS Delinquency Rate Spikes The Fastest Ever
- The Office REIT Conundrum Part II: The Big Apple Landlords
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With HSBC's Canary Wharf exit, commercial real estate meltdown expected to drag on