4 February 2021
2021 is destined to bring considerable challenges for us all, but there are very real opportunities in the offices sector.
Here are five key areas you need to focus on if you're operating, developing and investing in office space in 2021, to ensure your space is fit for a profitable post-pandemic purpose where everyone benefits.
Investors are looking for secure, resilient income. Last year, 60% of investment deals involved banking eight or more years' income. With little difference in capital values pegged to shorter income streams (ie three years, or between four and eight years), we believe the flight to, and fight for, quality/prime assets with secure income will continue well in 2021.
The trend to flexibility was visible at the edges of office provision before 2020, but "The Great COVID-19 Remote Working Experiment" will make it the norm. Many tenants are already renegotiating to take pressure off their overheads, but post-COVID office occupation will flex more fundamentally with tenant strategies (and headcounts).
There will be a steady stream of customers for high-quality serviced office space near vibrant amenities and major transport hubs, particularly in London's midtown (which welcomes the Elizabeth Line trial in 2021). Landlords will curate their space accordingly, supporting a beleaguered retail and restaurant market while embracing "meanwhile uses" to buffer against vacancies. Easy-enter, transparent agreements will make inclusive rents and shorter terms the norm in this space.
Companies will need to articulate the benefits of office-working to their workforces, stressing creation, reinvigoration, collaboration or even education, and office space must support this – balancing competing demands of efficient density and pandemic resilience.
With limited development pipeline, attention will therefore shift to refurbishments, such as meeting room re-configurations (to enable social distancing) and material selection (installing anti-bacterial copper). Even so, it might still take a while to earn workforce confidence, but done well, vacancy rates and the softening of yields can be arrested.
Proptech will be commonplace in refurbishment opportunities. These will generally attract equity-rich developers with local expertise; JV opportunities exist but there will likely be a divergence in capital as overseas investors compete for quality, market-ready space.
Many board rooms are placing ESG on the top of their 2021 corporate agendas, looking not just to survive the pandemic but to thrive beyond it. Carbon neutral targets will likely feature heavily in the planning, developing and management of buildings, and shared sustainability goals will keep everyone on track.
Clean air will be a holy grail for occupants, and strategies to ensure it will utilise proptech products to measure and report, while on a broader scale, preventing climate change is key. But when it comes to the individuals within the buildings, a new post-pandemic focus on wellbeing will reinvigorate and inspire workplaces.
Whether its landlords and tenants reweighting their visions for asset management, companies and employees rebalancing their working lives, or even landowners and financers refinancing secured debt and factoring in sustainable environmental goals, post-pandemic success will rely on the strength of working relationships. The behaviour of parties now will define the tone for a generation.
To discuss any of the issues raised in this article in more detail, please reach out to a member of our Real Estate team.