The City of London skyline. The merged Office Group and Fora would have more than 3mn sq ft of office space across the UK and Germany © Bloomberg
Two leading UK-based office landlords are set to merge in a £1.5bn deal that would make the combined group one of the most significant players in the fast-growing flexible office sector.
The Office Group, majority owned by US private equity group Blackstone, and Brockton Capital-backed Fora have agreed to combine, creating a company with more than 3mn sq ft of office space across the UK and Germany. The companies’ bosses plan further expansion into European cities if the merger is approved.
The financial terms of the merger have not been disclosed, but according to people familiar with both companies the combined entity would be valued at about £1.5bn.
The merger, which is subject to regulatory approval, is the latest sign of consolidation in the flexible office sector.
This month, FTSE 250 listed flexible working company Workspace agreed a deal to acquire McKay Securities for £272mn, bolstering its office portfolio in London and the south-east.
IWG, one of the largest operators of flexible and serviced offices in the world, last week announced a £270mn investment into London-based flexible workspace company The Instant Group.
The deals come as coronavirus restrictions are lifted and workers begin to drift back to offices.
But average office occupancy rates remain far below pre-pandemic levels. In the week ending March 4, average occupancy in the UK was just 21 per cent — though that was likely to have been affected by Tube strikes in London — according to Remit Consulting.
Investors in flexible workspaces are betting that offices that provide a high level of amenities and flexible leasing terms will grow in appeal, even if hybrid working patterns mean average occupancy rates are lower than before the pandemic.
“Businesses are increasingly recognising that the workplace is no longer a commodity, but rather a space that can be used to actively drive improved productivity, collaboration and the wellbeing of their teams,” said Enrico Sanna, Fora’s chief executive.
Sanna will be the chief executive of the merged group. Katrina Larkin, co-founder of Fora, will be chief environment, social and governance officer. Olly Olsen and Charlie Green, co-founders of The Office Group, will be executive chair and president respectively.
“At certain scales and with a diversity of options [flexible working] can work well. If you have a broad portfolio and you can offer tenants a range of spaces to grow into, then it works,” said Colm Lauder, an analyst at Goodbody.
Tenants in The Office Group and Fora offices include oil supermajor BP, pharmaceutical company GlaxoSmithKline and online grocer Ocado.
But the spate of mergers and acquisitions was motivated as much by the discounts available to investors in listed real estate companies because of the pandemic as by the specific appeals of flexible working, said Lauder.
According to Goodbody, 19 listed property companies have been taken private or merged with others in the past three years, with the coronavirus pandemic having pushed valuations down sharply.