In our last article we talked about how managing the office just got a whole lot more difficult. This week we’ve been looking through the landlord’s telescope. That just got more difficult too. We see reports of having to offer 2.5 years rent free periods, the lowest take up for a generation and declining demand for offices as tenants look to Work From Home.
It’s not all bad news, we see continued investment in the sector and a continuation of predictions that whilst the office market is changing, the future will be some flavour of the flex-hybrid model. The office is not dead, but it will be different. We will work some of the time in offices and some of the time at home or near home. Corporates will occupy less space overall but better quality space. Occupiers will seek reassurance that the office is safe, has good air quality and so on. So the prize for landlords is market share.
The trend towards quality and space efficiency started pre pandemic, Covid has accelerated that trend and has proved the hybrid model can work. Aside from the pandemic, the trend towards more flexibility and shorter lease terms is being driven by factors such as the changes in accounting standards and new entrants into the market such as We Work type providers that offer ultra-flexibility and full-service space, some even throw in free beer.
As an occupier it becomes less attractive to spend money on fit out, your own air conditioning system or your own internet fibre if your lease is only for 2-3 years. It makes sense to seek out good quality offices that the landlord has already fitted out and provides some if not all services.
The property investor and landlord is having to reinvent itself to meet this changing occupier demand. Transitioning its thinking from tenants to customers and working hard to attract and retain those customers is becoming increasingly important in delivering real estate returns.
We see a variety of approaches by landlords in response to this challenge. Some are offering the full-service treatment competing head on with the flexible providers. Others are building strong landlord brands that customers and their staff will fall in love with and creating apps that serve up lunch offers and coffee discounts. It’s a bit like retailers harnessing parent pester power so the users persuade their employers to move to or stay with a particular brand. There is a danger, however, of creating walled gardens by only showing offers from other tenants of the same landlord. Locking in tenants like this may not be universally appealing. Like the early days of the internet where companies such as CompuServe and AOL, who promoted a managed sanitised version of the internet, gave way to a wider richer and fuller experience.
The other big driver in both the demand and supply side of offices is Net Zero and what can be done to achieve it. Making progress means cutting energy use and carbon emissions in buildings. That means being space efficient and system efficient. Simply put don’t heat cool and light space you don’t use or don’t use very well. Give up the luxury of a dedicated desk you only use 2 days a week, don’t use the 20 person board room for that 5 person meeting.
To make sure a space efficient building is a better building, its systems need to be optimised. The building should respond dynamically to people, for example by automatically turning on heating & cooling only when needed and turning it off when the meetings done. A building needs to acquire or be built with intelligence to deliver connected, extensible systems and non-siloed data. If we get it right, we will have better more efficient buildings that can propel a net zero strategy and those buildings will be in demand.
So, who should put this infrastructure in place, the landlord or the tenant? We predict that intelligent buildings that meet occupier needs will promote attraction and retention of customers so, ultimately, we think it’s a landlord thing. There are, however, a lot of occupiers who won’t wait for a landlord to meet this demand and will want to fit it themselves.
We think the increasing demand for quality will drive the supply of intelligent spaces and lead to premium pricing for intelligent buildings and discounts for dumb buildings. Perhaps we are about to move from location location location to efficient efficient efficient.
At Beringar we are here to help. We believe in data-driven decision making, giving occupants, landlords and their customers timely data that informs the choices that need to be made. We provide an end-to-end solution to collect and analyse occupancy and important physical factor data such air quality, thermal comfort, light and noise levels in buildings. This establishes a data infrastructure layer than will allow truly intelligent buildings to evolve.
Beringar – Building Intelligence.
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