Owen Isherwood: The office is not dead and buried as a concept
Adam Fenney, Director at Owen Isherwood discusses the current office market:
“The office market is a strange one at the minute as there is a lot of uncertainty about the future use of office space, especially when speaking with business owners during viewings. We have found that a lot of business owners are finding it difficult to commit to taking space, especially on traditional lease terms because they simply do not know how much space they need to accommodate the ever-changing working patterns of their staff. There used to be a time where a business owner would know how many staff they would have in the office on a typical workday and would be clear on the location or select few locations they needed to be based. Now, employers are questioning everything including considerations such as location, size, specification, parking provisions, sustainability etc. This has meant that ‘cost’ has slipped down the ranking list as employers are realising that if they are to retain employees they cannot settle for cheap, uninspiring working environments.
This ambiguity of how the office environment fits into the culture of a company has led to a lot of indecision in the market. On the larger end of the scale, we have seen a growing trend of stay vs go exercises sometimes undertaken 2-3 years before a decision has to be made, making it difficult for us as agents to manage client expectations when a viewing takes place. However, it is clear that sustainability is back in the forefront of occupier’s minds and the properties that tick the boxes in terms of environment, well-being and amenities are the first to get let. Firms have cut their space requirements considerably and therefore can afford to pay more per square foot for best in class working environments, which has led to record rents being achieved by Landlords who are willing and financially able to spend huge amounts of capex on refurbishing their assets.
The story is more sinister for landlords who may have been struggling over the past few years with low occupancy and high interest rates, especially if they have borrowed against their assets and have mortgages to pay. We have seen millions of pounds wiped off capital values in all sectors but the office market was the hardest to be hit. Worsening yields coupled with long voids formed a two-pronged attack on Landlords and there are no signs of a major reversal in either regard unless they have capital in reserve to upgrade their assets. Upgrade means, replace/refurbish all M&E in the building, sacrificing lettable floor space to accommodate more common parts amenities and a complete overhaul of the common parts and office space. Not an easy or cheap undertaking.
The office is not dead and buried as a concept and we have seen more and more companies re-consider their working from home policies that were formed because of the pandemic. We have found it incredibly rewarding to be involved with the launch of offices that truly deliver a beautiful working environment and subsequently see that space being filled up with people who benefit from the opportunity to collaborate and build relationships with their colleagues. We expect the Landlords who can fulfil the newly evolved requirements of potential occupiers to be rewarded with increasing rents, lower voids and ultimately an increase in asset value.
If you are a Landlord who is considering what next to do with your asset, in any sector of the commercial property market, please do get in touch to see how we can help”.
You can see all of the commercial property listed by Owen Isherwood on Novaloca here.
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