London landlords focus on evolving service expectations as occupiers’ transition to customers
The third most significant concern was understanding where the next wave of demand is likely to come from. The survey was based upon London’s 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. 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.
Faisal Durrani, Head of London Commercial Research explains:
“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.”
More than three-quarters of respondents (78%) said they would be likely or very likely to ‘factor in workplace wellbeing during refurbishment and/or development’. 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. The improvement of digital connectivity emerged as a big 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.
In third place was the ‘provision of flexible workspace 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.
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.
Faisal Durrani added:
“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 London, it appears as though the market has already begun to respond to next generation issues such as workplace 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.”
