Meta has paid £149mn to break its lease on a major London development near Regent’s Park as hybrid working prompts big tech groups to pull back on office space.
British Land, which owns the building at 1 Triton Square, on Tuesday flagged a short-term hit to earnings as it will now have to find a new tenant for the eight-storey building in a challenging London office market.
“It is a staggering amount of money. In my 20 years, I can’t think of a tenant paying [so much] to give back space they don’t occupy,” said Matthew Saperia, analyst at Peel Hunt.
The news is the latest sign of Big Tech’s determination to reduce costs by cutting office space as more staff work from home. The contraction has hit cities such as San Francisco that rely heavily on tech companies. Office tenants and European markets including Dublin and London have not been spared.
Colm Lauder, real estate analyst at Goodbody, estimated Meta was now proposing to sublet or surrender close to 1mn sq ft of office space in Europe, mostly in London and Dublin.
British Land said Meta’s exit would knock its earnings per share by 0.6p for the six months to next March, but it maintained its full-year earnings expectations for 2024, crediting better than expected collection of back rent from the pandemic.
Meta had another 18 years on its lease and paid the equivalent of about seven years of rent to get out of the obligation, according to BNP Paribas Exane analysts, which could allow British Land to re-let the property at a higher rent.
The Facebook owner’s move gives British Land a cash injection. Chief executive Simon Carter said it “enables us to accelerate our plans to reposition” the office estate near Regent’s Park as a location for life sciences companies.
Meta never moved into 1 Triton Square but let the space in 2021 following a major refurbishment. Chief executive Mark Zuckerberg has embarked on dramatic cuts to the company of tens of thousands of staff, he has also committed to shrinking its office space, with hybrid workers asked to share desks.
The Silicon Valley-based company said in a recent US regulatory filing that it had recorded $3.35bn in restructuring costs related to facilities consolidation after initiating the cost-cutting programme last year. That makes early terminations of leases and other office-related costs the largest component of a scheme that has incurred a total of $5.41bn in restructuring charges so far.
In December last year, Meta said it would not occupy Triton Square and instead sublet the space. The company still has a second British Land office building nearby, at 10 Brock Street, and recently took all 10 floors.
Meta last year terminated leases in New York and paused a plan to expand in Austin, Texas. It previously told the Financial Times it was assessing its “entire global real estate footprint” as “the past few years have brought new possibilities around the role of the office, and we are prioritising making focused, balanced investments to support our most strategic long-term priorities”.
British Land said it had let 262,000 sq ft across its London office estate in the five months to the end of August, with rents 8 per cent ahead of valuers’ estimates. The company this month reported better than expected performance at its out-of-town retail parks. Shares in the company were up 3 per cent by Tuesday afternoon.
Meta declined to comment.
Source Financial Times https://on.ft.com/3t9zVpy