Friday, 16 October 2026
London’s flexible office sector is facing a more difficult leasing environment, with Workspace Group reporting a substantial reduction in new customer agreements during the quarter ending 30 September 2026. The company’s latest business update reveals weaker demand for office accommodation, modest pressure on occupancy and continued difficulties selling commercial properties at valuations acceptable to both buyers and sellers.
The company completed 227 new lettings during the quarter, compared with 326 in the corresponding period of 2025, representing a decline of approximately 30%. The amount of office space covered by new agreements fell from 179,000 sq ft to 121,000 sq ft. Customer enquiries also declined, averaging 516 per month against 666 a year earlier, while monthly property viewings decreased from 519 to 322. Activity was particularly subdued in August before improving in September.
Despite the reduction in transactions, rental levels remained relatively stable. Average rents across the portfolio increased marginally to £42.71 per sq ft, while rents within established properties rose by 0.4% during the quarter to £46.13 per sq ft. However, the total annualised rental income generated by the portfolio declined from £128 million at the end of June to £126.6 million at the end of September, reflecting a combination of property sales, refurbishment work and changes in occupancy.
Overall occupancy decreased by one percentage point to 79.2%, although the company attributed much of this movement to changes within its property portfolio rather than tenants vacating existing offices. The completion of 31,000 sq ft of additional accommodation at The Biscuit Factory introduced space that had not yet been fully leased, while other offices were temporarily unavailable because of refurbishment and conversion work. Excluding these factors, management reported a small improvement in occupancy.
Workspace is introducing changes to its leasing arrangements as it seeks to attract businesses looking for greater cost certainty and more flexible accommodation. A revised pricing structure introduced in September combines office rental and associated services into a single charge. The first 18 completed agreements under this arrangement achieved an average rent of £60.57 per sq ft, approximately 8% above the company’s estimated rental value for those spaces. Another 18 agreements under negotiation were priced at an average of £59.71 per sq ft, although these transactions had not yet been completed.
Investment in fully equipped offices is also being accelerated. Twenty-four units are being prepared across three properties in Clerkenwell, with the first accommodation scheduled to become available in November and the remainder expected in December. The company plans to invest approximately £1.5 million in these units and expects to introduce more than 100 additional furnished offices during 2027. Four other refurbishment projects are progressing, with completion anticipated in the second half of next year.
The investment market presents a separate challenge. Workspace has completed £138.3 million of property disposals since March 2025 and continues to target £200 million by March 2027. However, negotiations are taking longer as prospective purchasers respond to financing costs and economic uncertainty by seeking lower prices. Three sales agreed during the first quarter of the current financial year were priced at an average discount of 28% to their March 2026 valuations, highlighting the gap that can emerge between reported property values and achievable transaction prices.
Although more than £50 million of assets are currently under offer and further properties are being discussed with potential purchasers, management has indicated that an additional disposal programme exceeding £100 million is unlikely to be fully completed by March 2027. The company is therefore balancing its objective of reducing debt with the risk of accepting prices below its assessment of the properties’ longer-term value.
Net debt increased to £754 million at the end of September, compared with £740 million three months earlier. Available cash and unused credit facilities totalled £246 million, while the company’s indicative loan-to-value ratio stood at 36%, calculated using its March 2026 property valuations. Refinancing remains an important consideration as higher borrowing costs continue to influence commercial property investment decisions.
The quarterly figures illustrate the pressures facing London office landlords as they adapt to changing occupier requirements. Businesses are completing fewer leasing transactions, but rental rates have not experienced a comparable decline. At the same time, property owners are investing in ready-to-use offices and new leasing structures while managing the financial implications of a slower investment market. Workspace’s half-year results, scheduled for 18 November, will provide further information on the company’s financial performance and progress with its portfolio strategy.
