David Cluer is joint CEO and co-founder of MetSpace
With companies looking to attract staff back into the office there has been a notable shift in the London office sector, defined by the emergence of two distinct office tiers in the market. Those who have proactively invested in upgrading their spaces towards quality continue to drive the market, while more hesitant and nonreactive property owners with more basic offices, with fewer building amenities have struggled. Savills have reported that 81% of new leases this year have been accounted to either Prime or Grade A (the two highest tiers of office quality) ranked properties, making it on track to be the highest proportion ever.
It’s important to note the trend towards smaller leasing agreements. Occupiers are increasingly choosing more compact office spaces, with the 500 – 2,500 sq ft range emerging as the most favoured size, as reported by Denovo. This shift perhaps reflects the continuing preference for flexible working environments.
This two tier office market means there is a clear distinction between prime, high-quality office spaces and the rest of the market. Prime office spaces, often located in central areas, are reporting lower vacancy rates due to high demand for their superior amenities and location. In contrast, other office spaces are experiencing higher vacancy rates and fewer leasing offers. This division is driven by businesses choosing to seek top-tier market locations and packages that will attract employees back to the office while balancing flexible work arrangements. This is resulting with prime office spaces continuing to perform better than anticipated, attracting ever increasing interest from investors.
A Long-Term Trend
While we have observed this shift taking place over several decades, there is no doubt that the pandemic acted as a catalyst. The work-from-home era has meant that employers, who increasingly want workers back in the office, are now investing higher fees for collaborative spaces as well as areas where staff can go to focus or work in isolation.
Modern workspaces must go beyond basic functionality, reflecting personal values and lifestyle preferences making a comprehensive workplace experience crucial for attracting and retaining talent. Companies that recognise this understand that the quality of their office environment plays a significant role in their appeal as employers and for retaining the best talent.
These higher quality spaces are design-led, amenity rich, and are often personalised to the occupier’s brand, with some operators able to make these bespoke changes within days when required. Occupiers require high-quality communal areas, including “end of journey” facilities, as well as flexibility in the length of commitment. With the continued growth of managed office space, as well as the competitiveness of the fitted leasing market, means they’re getting what they want.
A Market Opportunity
Despite data from real estate firm CoStar indicating there are currently 31 million square feet of vacant office space in the capital, there should be optimism within the industry. As the work-from-home tide continues to turn, long-term stability in the markets, especially with elections now behind us, will enable businesses to make confident investment decisions. A stable period and a growth-friendly environment will create momentum in the UK’s commercial property market.
According to Resume Builder, by the end of 2024, 90% of companies will implement return-to-office policies. Consequently, developers and owners who can offer businesses flexible spaces tailored to evolving needs are likely to see increased demand for their properties. This anticipated shift back to the office underscores the importance of adaptable workspaces that cater to modern business requirements. Therefore, the ability to provide such environments will be a key driver of success in the commercial real estate market, with little sign of these trends reversing.
Through providing such environments, property owners who focus on providing top tier lettings will likely prosper.
