Who runs the world? Occupiers.

The shift to occupiers running the market.

The commercial property market is constantly evolving and London has adapted to its constant changes like no other city.

Central London’s occupier supply peaked in 2017 and is now falling, therefore, this decrease in supply has increased demand and in turn the need for pre-lets. This change in the market has seen supply peaking, development pipeline weakening and tenant demand strengthening. More than a quarter of all office space under construction is not due to be completed until 2020 at the earliest. The development pipeline before that point will only be able to satisfy a little more than half of tenant demand. As the pipeline thins and employment remains high, supply will fall.

In a post-Brexit vote market, London has continued to grow and prosper. However, it has meant that there has been a difference for tenants being offered more choice, lower rents, longer rent-free periods and shorter leases across the majority of London’s submarkets. The shock result of the referendum has not had the presumed effect on the London office market. Instead it has continued with a gradual readjustment to the market with rental levels marginally decreasing and rent free periods increasing by 1–2 months on 5 year leases in most London submarkets.

These weaker market conditions are enabling tenants to stake back some of the power from the landlords and giving them greater choice and the opportunity to secure more competitive deal structures with lower rents and higher rent free period packages, as well as more ‘tenant-friendly’ lease terms, including service charge caps, shorter leases and more flexibility built within conventional lease terms.

One key occupier trend that has had a colossal effect on this tenant friendly market is of course the rise of the serviced office and the dominance of this sector with the likes of WeWork and The Office Group. The Central London market take-over of serviced offices has meant that a large majority of SMEs are now considering serviced office space for their office needs, rather than acquiring a conventional leasehold. The effect that this has had on the market is that Landlords are now forced to compete with their flexibility and offer shorter term leases and more ‘tenant-friendly’ packages.

Landlords are now offering to take on the fit out responsibilities at the beginning of the lease terms on behalf of the Tenant in lieu for a smaller rent free package. This means that Landlords can maintain control and quality of the fit out of their office spaces whilst also ensuring that rent free periods are kept to a minimum. The benefits for Tenants include the fact that this pressure and time-consuming product is taken out of their hands and falls into the Landlord’s remit.

For most SMEs, the fit-out project can be one of the most stressful components of the relocation process and is often left to a member of staff with no previous experience in dealing with a construction project, as well as the time pressure of ensuring it is perfect for completion by the time their previous lease expires. Therefore, this idea of introducing CAT A+ solutions mean that Tenants can move into space that is fitted for them and relinquish this stressful process and also walk away at the end of the lease term with no dilapidations liability as well!

The technology that is now available shows that ‘agile’ working is far more cost-efficient and productive for the majority of occupiers. Therefore, Tenants are now about to reduce their property footprint, while maintaining, or even increasing their headcount. With this education available, it means that occupiers are now looking at the way that they occupy space and how they can improve their workforce’s daily experience in the office. This means giving more attention to natural light, furniture and general aesthetics such as plant life and greenery in the office. In addition to offering staff amenities such as free coffee or fruit and offering their employees shower facilities and a place to store their bikes.

The quality of the working environment is key determinant in attracting high calibre staff and the Central London talent pool is as tight as ever. Therefore, ‘Wellness’ in the workplace has become increasingly important as employers are becoming more and more sensitive and aware to their needs of their workers. This in turn has enforced Landlords to take action and adjust their buildings accordingly so that they can cater for this generation of workers. This includes adjustments to improve their buildings acoustics, air, water and artificial light quality in the office environment.

What all of this boils down to is that Tenants have finally taken back some of the power that Landlords have been holding for far too long. It is now the time for Landlords to listen to the people that are occupying their buildings and accustom their to suit their needs and desires whether that be in lease terms on offer or the ways in which buildings are now being designed.

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