Workspace suits 'hub and spoke' office future, JP Morgan says

Workspace is best placed to benefit from a shift towards a "hub and spoke" model for corporate real estate, JP Morgan said as it cut its target price on the company's shares.

JP Morgan analysts reduced their price target on Workspace shares to 700p a share from 930p and said they still saw 23% upside potential to support their 'overweight' rating. Adopting an "extremely cautious" view they priced in a 30% fall in property values over two years and a 40% drop in earnings per share this year.

Companies are rethinking their office requirements after employees spent months working from home successfully during the Covid-19 shutdown. Many are considering cutting their office capacity in central London and having outposts in the suburbs for workers to use nearer their homes.

A hub and spoke model for Workspace would feature its Metal Box Factory near London Bridge at the centre with spokes at the Chocolate Factory in North London, Pall Mall Deposit in the west of the city, The Fuel Tank in the east and Riverside Studios in the South, JP Morgan said.

Workspace's properties are well connected by tube, rail and underground transport with existing space at either point of the compass in suburban London, JP Morgan said. The company owns its property and digital infrastructure, allowing it to tailor arrangements for customers, they added.

The analysts said Workspace also has about 1m sq ft of projects in the pipeline outside central London, allowing time to capture the trend away from the centre.

"We see multiple benefits to this approach relating to employee satisfaction, corporate real estate costs and pressure on transport networks," JP Morgan analyst Neil Green and his colleagues wrote in a note to clients. "We imagine a hub and spoke office portfolio using Workspace assets, and consider it to be best placed for this potential shift."

"We are overweight Workspace as we believe the shares are too deeply discounted considering company positioning and potential 'hub and spoke' tailwind," Green said. He said JP Morgan was 'underweight' Derwent London "as we believe the recession isn't priced in despite it being a great company".

This story has been corrected to take out a reference to Regus.