Workspace targets rent increases and asset sales in London office turnaround

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Workspace London turnaround plan

Highlights

Workspace targets £125 million trading profit before interest in the medium term by focusing on higher rents and managed flexible office offerings.
The company reports a £120 million loss for the year to March due to lower property values and weaker rents, with shares down 19 per cent year-to-date.
Facing activist pressure from Saba Capital, Workspace rejects wind-down demands, plans to sell £200 million of non-core assets by year-end plus considering an extra £100 million in sales.

Turnaround plan and profit targets

As reported by the Financial Times, Workspace says it is aiming to reach £125 million of trading profit before interest in the medium term, with the plan relying in part on stronger pricing across its office portfolio.

Chief executive Charlie Green says the company is moving away from using lower pricing to drive occupancy, arguing that filling buildings through rent cuts is not sustainable because it reduces earnings over time. Green, who takes over as chief executive in February, is instead positioning Workspace around the "best-value" flexible office segment rather than the premium end of the market.

The company also plans to invest more capital in its managed offering, under which it fits out office space and provides services such as furniture and cleaning. Green says Workspace expects support from price rises already embedded in existing contracts, as well as from higher-margin products it has introduced.

Investor pressure and market implications

Workspace reports a £120 million loss for the year to March, driven by lower property valuations and weaker rents. Its shares are down 19 per cent so far this year, including a fall of almost 4 per cent after the results announcement.

The company is also facing an activist campaign from Boaz Weinstein's Saba Capital, which owns 22 per cent of Workspace. Saba calls in January for the company to be wound down, saying the shares trade well below the value of its properties, and in May it calls for all six non-executive directors to be replaced.

Workspace rejects the wind-down proposal and is pursuing asset disposals instead. It says it is on track to sell £200 million of non-core buildings by year-end and is considering a further £100 million of sales. Despite wider geopolitical uncertainty, the company says demand from small business customers remains resilient, while analysts at Panmure Liberum say the strategy is more likely to deliver returns than a 12-month fire sale.

Our earlier report on Workspace Group’s BBB- rating and stable outlook highlighted the company’s London-focused portfolio and its plan to use non-core asset disposals to fund investment, reduce debt and reshape its flexible office offering. We noted that the strategy aimed to balance lower occupancy with rising rents, alongside management changes intended to improve performance rather than pursue a break-up advocated by an activist shareholder.

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