Meeting the evolving needs of commercial tenants
As part of our recent market analysis report on London office space, we compared tenant mix take-up activity in both the City and the West End both prior to and immediately following the Brexit vote. Whilst headlines have consistently alluded to a London exodus, with Frankfurt and Paris both touted as cities likely to benefit from this, our analysis shows that the only sector affected by the Brexit referendum in terms of office tenant take-up was financial services and this proved to be a short-term impact. In the West End, take-up activity in terms of tenant mix rallied around 17%, consistent with pre-Brexit activity. In the City, the impact was more pronounced, but lasted only two quarters (Q1-Q2 2017). For the past nine quarters, tenants in the media and tech industries have been the leaders in office take-up across London and these tenants’ activity has been immune to the Brexit vote. It seems to us that other factors, namely the increasing demand for tenant focused, flexible space are far more significant in driving the London office market than Brexit ripples.
The way in which we work has changed irrevocably in the last decade. With the ‘WeWork model’ both developing in response to new needs and working patterns and simultaneously driving forward these new corporate behaviours, the office tenant wish list has evolved, with investors able to take advantage of the increasing value of tenant-focused office space opportunities.
An excellent illustrative example is 22 Bishopsgate. Upon completion, around 10% of the office space will be given over to communal facilities, including a food market, gym, innovation hub and health treatment centre, as well as flexible working space. As a new landmark city skyscraper, this demonstrates what top tier tenants are looking for from office space, and, indeed, how developers are responding to this demand.
Of course, tenant focused commercial space has become largely synonymous with providing flexible working, that is, offices without permanent desks for all staff. A 2017 survey of nearly 400 multinational companies operating in the Asia Pacific region found that by 2020, two-thirds plan to operate a hot desking policy. Obviously, this does not work practically for all industries, but is nonetheless a definite evolution of working behaviour.
CBRE’s 2018 research report The Flexible Revolution, shows that the global co-working market has grown by 13% a year since 2006, with London representing the world’s biggest market in terms of co-working and serviced offices.
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