An office will no longer be an essential part of working life. Instead, the office will form part of a balanced, flexible, collaborative and employee enticing working environment.
With the above in mind, we clearly need to see some changes made to the traditional and out of date office. Landlords should be using this lockdown time to listen to current and prospective clients (and their advisors). They need to understand what will attract companies back to the office. They also need to understand the competition. Serviced offices, managed offices, short term tenant leases are all now viable and cost effective competitors to the traditional office lease.
Landlords should also now have realised that they have a new challenger to the leasing market. No, not another WeWork or a PropTech disruptor, but a very simple piece of technology known as the Video Call. We needed change in the office sector and the video call could well be the catalyst to make that change (seems very strange writing that sentence).
Let’s be honest, office leasing was ripe for a disruption. WeWork were on their way to flipping the leasing market on its head. Unfortunately, like the majority of property companies, they themselves have now been caught up in the impact of the COVID-19 pandemic.
In addition, the leasing of an office is a laborious task at the best of times. Companies now don’t need to go through that process and they wont. Instead they could work fully remotely. Whilst this brings a mountain of challenges itself (and I for one am strongly against), we cannot ignore a remote working policy as a strong competitor to the traditional office environment. In order to entice companies to come back to the office, things need to change and be simplified.
Below are five key areas I believe will need to be reviewed, should Landlords stand any chance of attracting companies back to their offices in 2021:
1) Reduce Lease Length
The overriding trend of lease length in the UK has fallen in the past ten years. In particular, we had noticed in the past three years a movement towards five year leases and potentially breaks at year three.
This now has to become the maximum lease length and the norm. Landlords who offer flexibility will be the winners. Those who focus on longevity of income will lose.
2) Lower Rents and More Competitive Incentive Packages
In 2019, rents were agreed on Old Street at £84 psf… the same price as Mayfair. The market went crazy. The pandemic has brought about a slow but steady reduction in quoting rents across the UK. We expect this to continue for the foreseeable as demand remains low.
In addition, one of the main reasons for a company to continue to work from home, is that the lack of office means less outgoings in these tough times. If Landlords want to attract Occupiers back to their offices, they are going to need to sharpen their pencil and entice Companies interest, through competitive rent and incentive packages.
3) Reinvent The Legal Process (maybe even disrupt)
We once had a client ask why he could buy a company in the same time it takes to draft an office lease. We had no sensible answer to offer.
Whilst we understand that some larger more complex transactions need more paperwork, a standard SME office lease shouldn’t take a vast amount of time. The documents associated with the lease should also not rival War and Peace. The terminology and number of documents required is mind boggling.
A simplified, fair and short form version of the current lease needs to be developed and implemented by Landlords. This will reduce the cost and time spent at this stage of the transaction and attract companies to signing them rather than running a mile.
4) Improve Connectivity
If anyone has had the pleasure of dealing with a Wayleave to allow cabling to be installed in a property, they will know how frustrating and ridiculously lengthy the process is.
Landlords will now need to provide buildings with connectivity already in place. Secure and speedy internet connections will need to be installed to allow companies to plug and play easily and notably reduce the amount of time and cost to setup a network.
5) Provide Fitted Out Spaces
Fit out is a huge capital cost for any company. To attract Companies to empty offices, Landlords will now need to cover this cost . The majority are now considering the speculative installation of meeting rooms, kitchens and desks in their buildings. I am more of a fan of providing the incoming Company with a budget and allowing them to bespoke the space to their requirements (within reason). This means less speculative cost for the Landlord and more choice for the Occupier.
The overriding theme to come out of the pandemic is that Companies will want flexibility and choice. This covers all aspects of the process from lease length, fit out, connectivity etc. The more flexible a Landlord is, the more likely they will be to secure a Company’s interest.
The next few years are going to be a tough but exciting era for offices in the UK. We have no doubt that the office has a future and we are excited to see how that future evolves. Landlords will need to keep pace with demand and they are going to need to make their properties appeal to companies, who have had their heads turned by the video call. Those who are slow to respond or unwilling to change, could feel the full impact of the pandemic and see their properties vacant for extended periods of time.
