London’s River Thames against a backdrop of skyscrapers including 22 Bishopsgate, where Covington’s new premises are located.
Photo: Chris Ratcliffe/Bloomberg NewsBig U.S. companies such as Twitter Inc. and Facebook Inc. say they are embracing working from home and looking to reduce office space. But across the Atlantic, the traditional office market is showing signs of life.
Europeans are certainly leasing less office space overall, with demand tumbling 21% in the first three months of 2020 from the five-year average, according to Savills PLC. Coronavirus lockdowns put crucial site viewings and property inspections on hold, and some companies are relying more on video technology to work remotely.
Yet recent moves by companies including Uber Technologies Inc., BP PLC and global law firm Covington & Burling LLP suggest some companies are still eager to bolster their office space in Europe. Giant investment firm Blackstone Group Inc. has been particularly active in the region’s office-leasing market recently.
“The demise of the office is exaggerated,” said Jack Pringle, director for Europe, the Middle East and Africa for Perkins & Will, a U.S.-based architectural firm. Companies can’t expect to attract top talent with “the promise of a good laptop and £1,000 [$1,230] to kit out your bedroom with a desk,” he said.
The moribund market didn’t stop Covington from finalizing its lease for 86,000 square feet of office space in central London. The pact is one of several recent new office lease signings in European and U.S. cities such as Los Angeles, London, Berlin and Amsterdam since February. In many cases, deal negotiations started months before the coronavirus hit. Still, they underscore the real-estate industry’s confidence in the post-pandemic future of the traditional office.
The 195 lawyers, paralegals and other staff who work at Covington in London have been working remotely since late March.
Covington in April signed the lease for its new London premises at 22 Bishopsgate. It is making the move because the lease on its current office in London’s West End expires in September 2021. Covington chose the new location over extending the current lease because of the space’s technological advantages, including infrastructure that helps the firm ensure its security system is uniform across its offices globally.
The firm “sees training its new lawyers as more of an apprenticeship,” and training with a senior lawyer is a key part of that work, said John Waters, executive director at the Washington, D.C.-based firm. Covington is scheduled to move to its new home next summer. It will take over four floors of the 62-story skyscraper.
Blackstone has finalized three leasing deals in Europe during the pandemic, with rents in each case that were in line with levels before the lockdown, according to people familiar with the matter.
In February, the private-equity firm, which manages $324 billion in commercial and residential real-estate assets globally, agreed to lease 30,000 square meters of office space to Uber at its Tripolis property in Amsterdam. Then in May, Blackstone signed a 15-year lease with German insurance company Deutsche Rentenversicherung for 90,000 square meters at its Treptowers complex in Berlin, one of the largest office leases ever in Germany. In both cases, rents were unchanged from pre-Covid-19 levels, the people familiar with the matter said.
This month, Blackstone secured a lease, again for 15 years, with BP for 200,000 square feet at its 25 North Colonnade tower in London’s Canary Wharf financial district, according to people familiar with the matter. BP is scheduled to move in within the next two years after refurbishment of the space is complete, the people said.
Blackstone is a big player in the U.S. office market, but has been particularly active in Europe recently. The region’s lower vacancy rates make it easier for landlords to sign up tenants with favorable terms. In the first quarter, office vacancy rates in certain European cities ranged between Berlin’s 1.2% to 5.3% in central London, according to Savills. By comparison, the office availability rate across Manhattan was 11.5%, and for San Francisco 11.2%. The U.S. figures include vacancies and what could be leased in 12 months, Savills said.
“We continue to see robust tenant demand for high-quality office assets in European gateway cities, with, for example, over a million square feet of leasing secured across our portfolio since April,” said James Seppala, head of Blackstone’s European real-estate holdings.
Brookfield Asset Management, another big real-estate investor, has signed six new lease agreements during the lockdown in different cities in the U.S. and U.K. That included a long-term lease extension signed in June for 57,000 rentable square feet to a law firm at the Ernst & Young Plaza in Los Angeles. Brookfield declined to identify the firm.
Write to Ben Dummett at ben.dummett@wsj.com
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