Barclays to save US$45m in office sublet to government

[LONDON] Barclays Plc agreed to sublet office space in London's Canary Wharf financial district to the UK government, saving the cost-pressured British bank about £35 million (S$63 million) a year.

The Cabinet Office will lease about 50,168 square meters of space in 10 South Colonnade, according to a statement on Barclays's website Tuesday. IT and human resources staff formerly in the building are being moved to Barclays's headquarters at 1 Churchill Place or the investment bank office in the same district, a spokeswoman said by telephone.

Chief Executive Officer Jes Staley has said Barclays can make "tremendous savings" by reducing the amount of real estate it owns and leases, with headcount set to fall by a net 17,000 this year. The bank took a £150 million charge in the third quarter related to the property disposal, which Mr Staley said equates to the elimination of around 5,000 desks, or a quarter of its London office space. Barclays's move could be the first among a series of real-estate reduction programs in London as European banks seek to cut fixed costs and improve profitability, Bloomberg Intelligence analyst Jonathan Tyce said in a report Oct 28.

"The impact of technology, as well as relocation risks heightened by Brexit and passporting concerns, point to further structural cost reductions that could involve significant real-estate retrenchment," Mr Tyce said. "The structural benefit to the fixed-cost base will become increasingly meaningful, and more than offset upfront charges."

The Cabinet Office will move 5,700 civil and public servants into the building by the end of 2018 and agreed to a 15-year lease lasting until 2032, according to a separate statement. The government cited the "significantly lower costs" than the current offices in Whitehall, as well as Canary Wharf's transport links, as reasons for the move.

"This new hub will provide a better working environment for many London-based civil servants at considerably less cost to the taxpayer," Ben Gummer, minister for the Cabinet Office, said in the statement. "We will be replicating this approach across the UK, putting right the historic mistake of forcing public servants to work in ugly and expensive buildings."

The UK plans to save £2 billion over the next 10 years by selling underused historic buildings and moving workers to less expensive office space. The government plans to cut the number of offices it uses in central London from 181 in 2010 to about 20 by 2025.

Rents for the best space in Canary Wharf were about £45 a square foot at the end of last year, compared with £70 in the City of London financial district, according to data compiled by broker Colliers International Group Inc.

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