Richard Morris, director at technologywithin looks at how to extract value from city-based commercial real estate in the wake of COVID-19.
According to new research from Cushman & Wakeman, office vacancies in Europe are set to rise from a historically low pre-pandemic level of just 5.9% to 10.5% by 2022, with London particularly affected.
At the same time, despite the UK Government’s much heralded “Freedom Day”, a reported 61% of people are hoping to work more from home post-pandemic, than they did pre-pandemic. On top of this, businesses are of course becoming more agile and footloose in their location decisions – something accelerated by the large-scale shift to remote working over the last 18 months. All of which means that not only what tenants want from their commercial real estate is changing dramatically, but that landlords are facing challenges like never before. So, what steps can landlords take to extract value and maximise ROI from their commercial property assets following the changes wrought by COVID-19?
A digital nucleus
First, as is often the way, connectivity is key. Indeed, a survey of 1,000 SMEs found that the average worker could waste up to 72 minutes a day because of poor WiFi and unreliable internet connections.
Herein lies the big opportunity for the smartest landlords. By including sophisticated cloud networks and integrated video conferencing facilities to connect more geographically dispersed teams, commercial real estate can become much more attractive than remote working alternatives. Indeed, even prior to the pandemic, well-connected buildings could profit from a 5% ‘digital premium’ on rents. So, the need to invest in connectivity is clear.
Second, as has been demonstrated during this pandemic, businesses require flexibility to thrive and survive. That is why flexible workspace is such an obvious solution to many firms – large and small – who want to be able to bring people together to collaborate, whilst not being lumbered with vast offices that are hardly ever full. Which means that flexible workspace is also a solution for landlords looking to make their commercial real estate more attractive. In particular, the ‘space as a service model’ will be crucial to extracting value from commercial offices left empty by COVID-19.
This is because many tenants have used the pandemic as an opportunity to exit long-term leases. The market is now characterised by tenant Finance Directors and facilities managers scouring locations for a much better deal than they had previously, with plenty of vacant space to choose from. Hence tenants being much more interested in service(s) than simply square footage.
Contained services unlocking new revenue streams
And speaking of services, tenants are now even more mindful of what other amenities they can have access to in a workspace – especially having often been based at home for the last 18 months and much more able to nip to their local GP practice or hairdresser than they would have been able to when in the office. That is why the third step for landlords is to diversify their buildings to offer a range services. GP check-ups, occupational health, restaurants, and hair salons will all be increasingly attractive and important to tenants who do not want to go back to the office just to find themselves tied to a desk. And as well as offering convenience, landlords could offer greater safety in these services too. That’s because cleaning, hygiene and COVID-compliant track and trace processes can all be effectively managed by under one roof.
Safety with smart tech
Safety can also be enhanced by greater use of smart technology in the workplace itself – the fourth step which landlords should take. Workplace management systems and integrated technology such as sensors, motion trackers and ventilation will play a crucial part in reinstating people’s confidence in the safety of the office. Indeed, they will likely be fundamental. And for landlords, not only does this make their commercial property asset more attractive, but more efficient too. That is because everything from desk occupancy to energy usage can be measured and better deployed in the future.
Invest in design
Finally, landlords should invest in proper ergonomic design for office spaces.
The reason why is highlighted by a recent survey which found that 34% of people reported a lack of designated workspace at home, while 38% of people felt that lockdown has negatively impacted their wellbeing. That is a huge number of people who are clearly yearning for something better. It is also a headache for employers who are facing up to the health and safety implications of remote working.
So ultimately, as with all the other steps I’ve outlined, this isn’t about the “nice to haves”. Instead, it’s about the new essentials. These are the ways in which a landlord can make their commercial real estate not only appealing or accessible but compelling. Compelling to workers and employers who have not only been working from home, but who have had their expectations and experiences of working fundamentally turned upside-down.
It’s time for landlords to catch up.