Going Back To The Future With The Occupier
Renewed re-occupancy, the subsequent evaluation and refinement of requirements, and a greater willingness to act will be the hallmarks of London’s occupational market in 2022
5 minutes to read
In keeping with its global counterparts, London’s occupational market gained momentum during 2021. Year-end leasing volumes, although down on long-term averages, were up almost 40% year-on-year. Encouragingly, active demand currently stands at 7.6 million per square foot, suggesting a significant flow of future transactions. Both of these metrics could have been higher still but for the periodic rise of variants that caused occupiers to apply the brakes on projects, bringing a staccato rhythm to the market. Additionally, some inertia emerged amongst occupiers who, in the absence of any true signals from their offices over the last 18 months, were unclear as to how much floor-space they might require over the longer-term.
Re-occupancy as an important first step
These reasons are why the re-occupancy of offices, which had started to gather some momentum prior to the Omicron induced government guidance, is so critical. It is an essential second stage in what the great global workplace experiment spawned by the pandemic. The attitudes, behaviours and engagement of staff as they return to the office will provide occupiers with essential signals as to what the longer-term form, function, quantum and qualities of the office might look like. Formulating such a view at a time of enforced lock-downs and restrictions has been fraught with difficulty. In this sense, office occupiers must go back in order to shape the future.
For many occupiers this process of evaluation has become urgent. The London office market has more than 24.5 million square feet of lease expiries pending between today and the end of 2025. These expiries present the opportunity for occupiers to make a step change in their real estate. Concrete action is likely to be much more effective if built upon robust evaluations once staff have returned and expressed how they wish to engage with the office going forward. This year will see the start of this evaluation, leading in due course to a clear picture of occupier requirements.
Transformative business strategy brings real estate into focus
There is a growing sense that 2022 will be the year when we move from pandemic to endemic. As that transition occurs, the motivations underpinning business strategy will also shift from being defensive and reactive towards a more progressive and transformative footing. Accordingly, we expect business leaders to act urgently on three fronts, each of which shines a spotlight on the real estate they occupy.
1. Closing the gap between ambition and action on sustainability
The pace of action on sustainability will ratchet up further this year. An ambitious tone is already in place with the targets set by most businesses now open to public and market scrutiny. The advent of additional regulatory pressure, coupled with greater pressure to act from staff, suppliers, investors and customers, mean that the operation and occupancy of more sustainable real estate is becoming mission critical. No business leader would wish to be found wanting. The stakes are just too high. We will see greater appreciation and understanding of the journey towards sustainable real estate over the next 12 months, and everyone across the real estate sector will need to assist in closing the gap between ambition and action.
2. Creating a place in the new world of work
Our personal and collective working experiences during the pandemic, when combined with the apparent strength and resilience of London’s labour market, will force a fundamental re-evaluation of the how and where of work. This will raise the noise levels in relation to hybrid workstyles, whether staff work remotely or in an office. As we have argued previously, this does not negate the need for offices. Instead, it heightens the need for better offices that prove more compelling and enticing to their users. The flight to quality apparent in the London market will therefore continue, but against the backdrop of limited available new supply and the associated sustainable development challenge of bringing older office buildings up to the mark rather than simply razing them to the ground. Occupiers are already recognising that securing the right places in the new world of work will require them to act with more zeal.
3. Cultivating corporate culture and connection
The greatest fuel to an emergent, progressive business agenda is c-suite sentiment. Early year surveys of business leaders point to great optimism with expectations for headcount and revenue growth now well above pre-pandemic levels and hitting a seven-year high. Achieving this growth will require significant on-boarding of new staff and the conversion of opportunities into real business. Both point to a renewed role for the office as the place where corporate culture is galvanized and where the conversion of contacts from prospective to actual clients occurs. Some argue that on-boarding and business development can occur in the virtual world and indeed it can, but the office presents the best means to deliver this efficiently and effectively. In our view, culture and connection will be central to the emergent reappraisal of the office as the heartbeat of high-purpose, high-growth companies.
Twenty twenty-two (2022?) is the year when the rubber truly starts to hit the road in London’s occupational market. Although there is potential for further staccato rhythm, the growing appreciation that coronavirus is something that we will live with over the long-term requires business leaders to advance their transformation plans. Acting on three specific fronts, they will place real estate firmly in the spotlight. This is good and exciting news for the London market.
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