The Inside Story Of A Massive Global Company’s Dramatic Office Downsizing

Sustainability, flexibility, cost and talent. Those are the reasons international "magic circle" law firm Clifford Chance made one of the biggest office moves in recent London real estate history.

“We're looking to reduce our total cost of occupancy and increase operational efficiency, and that's through not only taking less space but looking at how we actually occupy it,” Clifford Chance Global Head of Property Portfolio Nicole Brocklebank-Fowler told the audience at Bisnow London’s Evolving Office: Meeting The Demands Of Tenants event, held last week at Landsec’s The Forge building on London’s Southbank.  

In November, Clifford Chance concluded a review of its London space needs and decided to leave its home of more than 20 years for a building almost half the size. 

It leases almost 700K SF at 10 Upper Bank St. in Canary Wharf in the Docklands area of east London, and it already subleases a significant chunk of that space. 

Like HSBC, which announced a move last month, it is leaving Canary Wharf for the City of London and will lease all 321K SF of 2 Aldermanbury Square, which is being developed by real estate investment trust GPE. 

Brocklebank-Fowler said the flight to quality is causing big companies to take less — but better — space. That is highlighted by the deal the company has done at Aldermanbury Square. It is taking half the space but paying £77 per SF, higher than the £50 per SF at which rents typically top out in Canary Wharf.

With that in mind, she said the owners of Grade A office buildings that offer what modern tenants want may see a few years of rent increases, even if the rest of the market sees declines. 

“There's always the supply and demand question,” she said. “There's not a huge amount of supply for fairly large occupiers in the City that meets the criteria for tenants that are looking to tick all these boxes. And so that's why prime rents have not fallen in the City. And I don't think that's going to change anytime soon. If anything, I think they're just going to keep going up for the next couple of years. But occupiers will be willing to pay that.”

Clifford Chance is trying to use its real estate as flexibly as possible in order to bring down costs, and smart technology that allows it to monitor building use is a growing part of that, Brocklebank-Fowler added. Those tools create a good experience for staff and clients while allowing the company to reduce energy consumption.   

And the nature of Clifford Chance’s lease highlights how landlords are increasingly offering tenants very high levels of flexibility in order to attract them to buildings: Gone are the days of a 20-year lease covering all of the space a company wants to rent at a given point in time. 

At 2 Aldermanbury Square, the company has entered an agreement to lease the lower ground to 12th floors on separate 20-year leases, with options to break at year 15 together with additional options to break at year eight on the fourth floor and year 12 on the fifth floor. It also has an option to hand back the first through fourth floors of the building — up to 89K SF — that expires on 1 March 2024.

The need for less space than the company took in 2003 is something that was in train before the pandemic, and the move to greater hybrid work has impacted its needs again, Brocklebank-Fowler said. 

The firm found that only 80% of its staff was in the office on its peak usage days pre-pandemic, and that proportion dropped to 60% or 70% on a more standard day.

“So why are we sitting on 20% vacant space?” she said. “That's just not efficient, it’s not sustainable, it’s not good for anyone. So we fit out less space in a better way that allows people to do work in a better way.”

If that peak was 80% before the pandemic, what is it now?

“I couldn’t possibly comment,” she said. “But it’s not 80%.”

Lease events, but also the deadline to meet energy performance certificate deadlines, will prompt tenants to make a move and swap older, less sustainable buildings for greener options, Brocklebank-Fowler said.

The need for buildings to have an EPC rating of B or higher by 2030 could prompt a huge wave of occupier moves, event speakers said. 

“If we're going to meet EPC requirements of B by 2030, then occupiers need to think about that, because if you have a lease that runs beyond 2030, you can't dispose of your space if you don't need it anymore,” Landsec Head of Offices Oliver Knight said. “It won't actually be permitted in law, and that's going to drive a lot more turnover of and demand for space in London and across the whole of the UK, more than we would have seen in the past.”

Having the highest possible sustainability credentials was of vital importance to Clifford Chance not just because of climate commitments the firm has made but also because it is the right thing to do for the planet, Brocklebank-Fowler said.

“There's a huge sustainability drive in the properties that we're seeking, not only in London but elsewhere,” she said. “We've made science-based target commitments. We take this very, very seriously. And our clients are also asking us what our carbon emissions are. Our carbon emissions are their carbon emissions, and so there's a real drive for us to get those down.”

The company has committed to reducing its Scope 1 and 2 emissions by 80% by 2030 and its Scope 3 emissions by 47%, which will ensure the firm is net-zero by 2030. 

“You make a commitment publicly, you have to stand by that commitment,” Brocklebank-Fowler said. “So there is a lot of work going on around this, and it's not going away anytime soon. And it's the right thing to do, quite honestly.”

Sustainability is an increasingly important factor when it comes to attracting talented staff, Knight said, citing data that showed 20% of 18-to-24-year-old workers had rejected working for a company because it did not meet their ESG aspirations. 

“It's not just necessarily we have this ambition, and this is where we want to get to. Young people are actually — they're voting with their feet,” Schneider Electric Vice President, UK&I Digital Buildings Kas Mohammed said. “They're saying if you're not walking the talk, we will work somewhere else.”

That means companies looking to hire young professionals need to consider sustainability in their real estate decisions.

“There is still a war for talent, trying to attract and retain top talent, trying to get people back in the office, albeit not all of the time,” Brocklebank-Fowler said. “But when they are in the office, creating a place where they can do their best work. So that's focusing on wellness, focusing on amenities, focusing on giving them the right space to do the work that they need to do at the right time.”

One area of debate when it comes to offices, occupier choices and sustainability is the question of embodied carbon. The operations of a new office building might be more sustainable than an older building, but the construction of that new building emits carbon as well, typically more than 50%-75% of its lifetime carbon emissions, International Energy Agency data found. 

“I think it's fair to say, if you asked an occupier, 'What does embodied carbon mean?' they would look at you very, very blankly indeed,” Landsec’s Knight said.

Brocklebank-Fowler said Clifford Chance is in the process of working out how it takes embodied carbon into account when making its office leasing decisions. GPE sought to reduce the embodied carbon in the 2 Aldermanbury Square development by taking the steel from the building it is knocking down there, testing it to make sure it can still be used, and then reusing it in the new scheme and others elsewhere in London. That will mean about 1,000 tons of carbon are not released as a result of the new development.