THE RACE FOR SPACE

26 CUSHMAN & WAKEFIELD 27 RACE FOR SPACE OUTLOOK T he Central London office market is approaching a crossroads. There is a very real possibility that supply levels continue to fall to such a point that large-scale pre-lets become even more difficult to achieve. If landlords and developers do, however, commit to delivering additional space in the short to medium term across Central London then pre-letting could increase even further. The rest of the UK looks set to see increased demand for pre-lets, drawing parallels with the London market in terms of the relatively low volumes of new space being delivered. It will not be enough to deliver greater volumes of space though; landlords need to continue to align their strategies with the evolving needs of the occupier. Flexibility, in every sense of the word, is central to the potential success of future office schemes attracting pre-lets, alongside the provision of amenities and services that create a better working environment for employees. This will need to be balanced against landlords’ valuation objectives. Flexible workplace providers could be perceived as a threat to pre-letting. Flexible operators have the ability to provide a turnkey solution that could disrupt the status quo between landlords and occupiers seeking pre-lets. Alternatively, they could provide an opportunity for landlords to create partnerships, or improve their own flexible offering, giving prospective and existing tenants a new service that meets their changing needs. What is clear from this report is that London continues to be a destination for a diverse profile of occupiers, who have committed to the capital for many years to come. Regional cities could stand to benefit from continued leasing activity from the Government Estate Strategy, as well as London occupiers looking further afield for cost-effective real estate options. Occupiers • Don’t think that buildings have generally ‘moved on’ in the last 5-10 years. • Have a dwindling number of options as both built supply and the development pipeline continue to decline. • Need flexibility in the lease that allows a core space take but with options to grow or rationalise depending on business needs. • Large occupiers seeking a move will increasingly need to start their search four years in advance of a lease event, especially if they want to locate in the core. • This competition for core space will make fringe locations more desirable, especially with the rental savings available. Landlords • Think that they have made significant changes to their portfolios to attract pre-let occupiers. • Need to find a way to offer flexibility to occupiers whilst achieving their business aims. • Landlords hold the key to alleviating the tightening supply pipeline in Central London. They will need to bold and ‘push the button’ on developments, despite the ongoing political uncertainty. • Flexible workplace providers are a potential threat to landlords seeking pre-lets, as occupiers are able to find a short-term solution and wait for the right building to come along. CONCLUSION “WE MIGHT DELIVER CERTAIN ASSETS SPECULATIVELY – TO FACILITATE CHANGE IN A LOCATION.” A Central London Landlord “LOCATION IS THE MOST IMPORTANT FACTOR AS ULTIMATELY AS AN OCCUPIER YOU CAN CHANGE A FAIR AMOUNT ABOUT A BUILDING.” A Central London Occupier