Occupier expectations & priorities top concern for London landlords

The need to attract and retain talent is increasingly central to operations as organisations work harder to attract and nurture the best. This desire is translating into more discerning occupiers. They have clear expectations and visions for the type of space they occupy as offices become windows into an organisations’ culture, driving demand for ever-more customised and personalised work environments. And so as tenants transition to being ‘customers’, landlords are responding. 

At a time of significant change in the office market landscape, we have run a survey of London’s largest landlords and investors, who together have office holdings of nearly 25 million sq ft, representing just over 10% of all office stock in Central London. We asked for their views on issues they feel are significant to both them and their customers, in addition to their take on the direction of travel for rents and yields.

Many of the results from the survey corroborate our own experience in the market, especially when it comes to next-generation issues such as sustainability, workplace environments, wellbeing and the importance of digital connectivity.

The results

Our survey showed that ‘understanding occupier expectations and priorities’ remains the biggest London related concern, followed by ‘understanding what services/amenities occupiers/customers now expect’. The third most significant concern was ‘understanding where the next wave of demand is likely to come from’.

The war for talent has not escaped the attention of the city’s developers and investors, with ‘how to attract and retain the best staff’ highlighted as the most significant real estate issue for their tenants/customers. Rental costs came in second, while the amenities in a building, along with its digital connectivity credentials were jointly positioned in third place.

78% of respondents said they would be likely or very likely to ‘factor in workplace wellbeing during refurbishment and/or development’

Amenity awareness

When it comes to specific amenities, ‘providing end-of-trip facilities’ emerged as the top provision by respondents, while ‘offering high-speed broadband through a direct fibre connection’ was next. In third place was the ‘provision of flexible work space and meeting rooms within the building’. On the flexible office market’s rise, 43% said it has had ‘some impact’, and that they have changed their offering to offer a greater level of amenities and services. A further 10% say they are considering offering their own flexible office brand. 

Next generation issues will define refurbishment and development programmes

78% of respondents said they would be likely or very likely to ‘factor in workplace wellbeing during refurbishment and/or development’ over the next 12 months, highlighting how quickly this issue is rising to the top of property considerations. In line with the growing awareness of environmental, social and governance issues that we are hearing from our clients, the majority of respondents said they would be likely, or very likely to ‘factor in environmental credentials (such as LEED, BREEAM, etc.) during refurbishment and/or development’. 

The improvement of digital connectivity emerged as the second biggest feature that respondents would be likely, or very likely to consider during refurbishment, or development. 

When it comes to expansion, 73% of those surveyed said they would be likely, or very likely to expand their portfolios in London over the next 12 months, providing further evidence of the resilience of the market and the confidence in its continued expansion.

A further 92% said they would buy commercial property in London during 2020, while 40% said they would sell commercial property in London this year.

Market expectations

When asked about the outlook for office rents, 73% of respondents said they felt rents in both the City and West End would be likely, or very likely to rise during 2020. Responses on the outlook for yields was more mixed, with 40% feeling the status quo would be largely maintained, while 37% believe there would be some yield compression in 2020.

The customer is king?

The results of our survey demonstrate the impact the evolving nature of customer requirements is already having on landlords, developers and investors. In the context of reLondon, it appears as though the market has already begun to respond to next generation issues such as work place amenities and staff wellbeing, however there are clear challenges around capital expenditure for landlords and investors eyeing up refurbishment opportunities.

Positively, as a greater awareness of the amenity driven market that has emerged in London spreads, customers stand to benefit from enhanced product offerings; however the dearth of supply may curtail the speed at which the office landscape in London transforms.

For now, landlords, particularly those with scale, appear best placed to adapt their portfolios and command rental premiums over their peers as ever more discerning customers are comfortable spending more on must-have extras.