Office gossip?

One of the features of real estate investment is that it is narrative led. As much as we all try to see definitively into the future, the timescales involved and sheer number of variables mean that calls often have to made long before the hard data fully emerges to vindicate or undermine the decision. It is in this band of risk that the sector makes its money.

For those making big bets, the time between investment story and solid evidence can feel somewhat precarious. So it is pleasing to see a narrative confirmed by the data, in this case with regard to prime offices. The results are in, and the news for investors in the sector is positive.

This week saw Landsec report its latest results, revealing the health of its office portfolio, which is focused on Central London. Like-for-like rental income is up 6% and occupancy stands at 98.6%, a 20-year high. In parallel, accounts filed by Canary Wharf Group showed a return to profit for the first time since the pandemic following an increase of 2.8% in the value of its office portfolio.

These results should not be underestimated. Landsec is an established bellweather of the market as a whole, and maybe no company was as impacted as Canary Wharf Group by worries around the future of offices. To see both of these companies reporting good increases in rents and values shows just how much the narrative has changed from the concerns five years ago over occupier demand for prime office space.

But we should be careful not to get too caught up in the "offices on the rise" story. The portfolios owned by Landsec and Canary Wharf Group contain some of the most prime office space in the country, with structural undersupply and strong demand from an increasingly diverse range of occupiers. These dynamics won't apply to all markets, and the long-term prospects for secondary and tertiary office space are somewhat less optimistic.

And risks still remain for even prime office space. The full impact of AI on office demand is far from predictable, and how that shakes out could have major implications. It is perhaps notable that, even with the improving office market, both companies are continuing to pivot away from the sector; CWG is continuing to position the district towards residential, and Landsec is in the process of selling down £2bn of offices to move into living assets.

As one narrative is proven to have been correct, a new one - the embrace of living - is being acted upon. As ever in real estate, the data may ultimately be crucial, but it is the narrative that sparks the action. A lesson there for anyone looking to shape the story that they are telling the marketplace.