When global banking giant HSBC announced at the end of June it was moving its London headquarters from a 45-story tower in the peripherally located business district of Canary Wharf to offices around half the size in the more centrally situated City of London, a proverbial gauntlet was thrown down in the debate over the future of the office.

The bank, a proponent of the hybrid working model, is one of several large corporations that have decided since the pandemic to move their offices within London, one of the world’s largest office markets, upon lease expiry. Others notably include international law firms Clifford Chance, Dentons, Allen & Overy and Reed Smith.

With many of these companies significantly downsizing to manage the impact of hybrid working on employee occupancy, it would be easy to add this trend to the long list of troubles faced by office landlords in London and elsewhere. But while some office owners will be challenged by the shrinking space requirements of large corporations, the attention this draws eclipses a more nuanced set of motives to move.

“Data shows us that although some occupiers are downsizing, they are trading up to better locations and better spaces to increase staff collaboration and engagement,” says Ric Lewis, founding partner of London-based manager Tristan Capital Partners. He sees strong occupational appetite for ESG-enabled, Grade A stock both in London and throughout Europe where demand is outstripping supply.

In the case of HSBC, the bank’s new home will be Panorama St Paul’s, which is currently being developed by manager Orion Capital Managers on the site of telecoms giant BT’s former headquarters. The London-based manager is reportedly reusing 70 percent of the existing structure, and targets NABERS 5 stars and BREEAM Outstanding among the building’s environmental ratings.

“Do I care that HSBC is moving out of over a million square feet? No. What I care about is that they’re moving into 500,000 square feet in the location and the type of building that I’m building,” says Michael Kovacs, founding partner of Castleforge Partners. The London-based private real estate firm purchased Winchester House earlier this year, in partnership with Malaysian construction company Gamuda Berhad. The venture will expand and revamp the office building’s sustainability profile once long-time tenant Deutsche Bank has departed.

“You have buildings that are not even 20 years old that have no sustainability credentials and were not designed for employee wellness,” Kovacs continues. “They were maybe cutting edge pre-GFC, but that cutting edge is now very much obsolete, so tenants are having to move, even those that have been in a building for only 15 years.” He adds the high rents and long leases typically associated with larger corporates will naturally mean they want a new or newly refurbished building, whether or not they need to downsize, to give them the best chance of attracting talent and employees back to the office.

In contrast to the substantial space reductions common to some of these headline deals, research by broker JLL shows the average size of leasing transactions in Central London is largely consistent with the 15-year average, which is around 19,800 square feet. At just over 18,200 square feet in 2022, last year’s average is not far below trend. In addition, the average transaction size in 2021 was the highest since 2010, at over 21,700 square feet; this was boosted by 15 deals in excess of 100,000 square feet, up from the long-term trend of 11 such deals.


With 2010 the most recent peak in average space transacted in Central London, downsizing is not necessarily a result of the pandemic. Kovacs agrees: “The big corporates make changes every 15 or 20 years, and it’s just dramatic how different their needs were 20 years ago relative to today.” He cites both the move to a more agile style of working and the evolution of computer technology onto the cloud as pre-covid factors contributing to surplus space.

Even so, determining exactly what the right amount of space is – particularly when having to decide around three years in advance of moving – is a challenge for occupiers, given the prevailing uncertainty around post-pandemic working patterns. For Dentons, which is moving into One Liverpool Street when construction completes in 2026, figuring this out was one of the most difficult parts of the process, according to Rob Thompson, a partner in the law firm’s real estate group. Dentons has signed for around 67,500 square feet and has the ability to flex this figure up or down nearer the time to account for ongoing uncertainties.

One Liverpool Street: Dentons’ new home from 2026, developed by Aviva Investors and Transport for London

Dentons will downsize from around 150,000 square feet in its current home, 1 Fleet Place. While the motivation is primarily to embrace a post-covid hybrid working model, Thompson says, there is also a desire to be more cost and space efficient – the company has already sub-let a number of floors in its current premises – and flexible with its use of space. “Having the right kind of collaboration space is really important, both within Dentons for us as an occupier, but also for our clients, so that we can share ideas and work together,” he explains. “For us this involves moving away from a traditional cellular office environment into an open-plan space with informal meeting environments.”

While residing in a more sustainable building was not the driving factor behind the move, Thompson says it was a key deciding factor in the selection process: “Any developer or landlord that we felt was cutting corners on ESG or sustainability targets would have been a negative for us.”

Staying power

Another salient detail in some of the big-brand leasing announcements was a landmark change in location. In the case of HSBC and Clifford Chance, this ended a period of speculation that the 20-year tenants would leave their Docklands home for rival business district the City of London.

“I think the focus on location hasn’t been sharper for any time in my career,” says Chris Valentine, head of the Central London office agency at JLL. “Locations close to transport nodes and outdoor spaces, that are vibrant and exciting and close to peers, are much more likely to get that strong retention and return than the more peripheral locations [like Hammersmith].”

Kovacs thinks that when employees of large corporates become disgruntled with location, the employers have to consider moving. “The reality for those tenants is they don’t care about the rent per foot, within reason, because their staff cost is huge relative to their real estate costs.”

The fact that Dentons, Allen & Overy and Reed Smith are staying within the City is testament to the continued attraction of the Square Mile as a place to work and socialize with colleagues. Nevertheless, these law firms – like Deutsche Bank before them – have all still decided to absorb the high cost of a move, even if just across the street.

The common denominator, then, is ESG – the one secular trend property owners can bet with near certainty will future-proof their investments. And, as Lewis noted, eco-friendly, high-quality real estate is in short supply across Europe. In London, JLL calculates there is currently 8 million square feet of net-zero carbon office buildings in the development pipeline through 2026, but pegs demand at around 19.2 million square feet through 2030.

More refurbishments will have to be undertaken to meet this consumer demand, but Valentine emphasizes the difficulty of delivering the required energy performance standards around sitting tenants. “It’s also a challenge for an occupier to work out how they’re going to align their real estate, which is quite often one of their biggest contributors to their carbon story, with their corporate objectives, without moving.”