Smaller office landlords challenged by the rise of flexible office space

Smaller office landlords challenged by the rise of flexible office space
  • Net effective rents are still falling, but headline rents are flat. This reflects the fact that rent free periods are continuing to rise and in many sub sectors two years rent free is now readily available on 10 year leases.
  • The market continues to be underpinned by a comparatively low vacancy rate – currently standing at 5.9%, well below the 15-year average of just under 8%.
  • Buoyancy in pre-letting activity – demand for best in class schemes is reflected in the comparatively high proportion of space in Q1 that was pre-let at just over 16% of total take up – this is materially higher than proportions seen in recent years at sub 10% of total stock.
  • Landlords have been generally far more responsive to the recent downturn than in previous cycles. This is not only in relation to rent and rent free periods, but also lease flexibility, together with a willingness to cap service charges and dilapidations with older style buildings.
  • The volume of flexible office space in London rose by 20% in 2017* and as such smaller office landlords need to rethink their position in the market.

Smaller office landlords challenged by the rise of flexible office spaceFaisal Durrani, Head of Research at Cluttons comments:

“As we work our way through a very quiet patch for the London office market, the market disrupting trends of coworking and flexible working are having a profound impact on the way landlords are responding. For the first time, people are being placed at the heart of building design, with many older buildings also facing the prospect of having their ‘corporate feel’ stripped out in favour of something more contemporary that revolves around increasingly critical considerations such as wellness and connectivity.”

“Smaller suites are facing the most significant challenges at present, with space of under 2,000 to 3,000 sq ft in particular being side stepped by smaller occupiers and SME’s in favour of serviced or managed offices, which are increasingly in vogue, not least because of the cost savings. Going beyond CAT A fit outs is not only an expectation of landlords, but a necessity if voids are to be minimised.”

www.cluttons.com

 

Smaller office landlords challenged by the rise of flexible office space