"The new trend in offices appears to be rising demand for larger, high-end, environmentally sustainable properties – with top BREAM, EPC and more recently NABERS and LETI ratings. Aligning with long-term environmental goals is now a key factor for tenants when they want to ‘future-proof’ their office move"
- Nav Sahota - Reed Smith
As companies continue to encourage employees to return to the office, existing coworking setups – which have until recently been enjoying such a surge in demand – have now started to see this flatten out. Indeed, the patterns in office rentals are no longer as they were during and immediately post-pandemic.
Having downsized during Covid to smaller, more flexible offices, companies are now finding it difficult to accommodate their workforces and are once again searching for larger office spaces.
In particular, what is being sought after are high-end, sustainable spaces. For instance, tenants are increasingly looking for creative models which include luxury communal areas and an overall working set-up which fosters movement and collaboration. This is combined with an expectation that these spaces will align with companies’ long-term environmental goals.
Landlords must be aware of this trend. Whilst there will always be a demand for coworking spaces, there is now a shortage in the supply of high-end, environmentally friendly offices. These are no longer a ‘nice-to-have’, but for many prospective occupiers an absolute must.
Coworking spaces – yesterday’s hot topic?
Post-pandemic, many companies are stuck with hybrid models of working. It became a standard view that offices were emptier than ever before. This was exacerbated by an environment of economic uncertainty, as companies made short-term plans to respond to rapidly changing situations.
Accordingly, coworking setups – which provided greater flexibility and were more cost-efficient – became increasingly popular. Offices came fully furnished, with higher-quality facilities than were typically found in pre-pandemic long-lease offices. Gyms were common, and sleek designs, well-stocked coffee bars and kitchens were almost ubiquitous. These spaces thrived in the competitive and growing short-term rental market.
However, aspects of these coworking spaces no longer align as readily with many companies’ efforts to encourage employees to return to the office. What was once an advantage – their smaller size and short-term focus – has now become a problem as they cannot accommodate everyone or longer-term plans.
They are also less economically attractive than they once were, as rising rental costs, previously more offset when occupancy time was lower, mean larger, permanent office spaces are once again becoming just as, if not more, competitive.
Whilst notable pockets of the market will clearly still make use of these spaces, it does appear that we are out of the other side of the pandemic-era coworking boom.
Green goals – the new priority?
The new trend in offices appears to be rising demand for larger, high-end, environmentally sustainable properties – with top BREAM, EPC and more recently NABERS and LETI ratings. Aligning with long-term environmental goals is now a key factor for tenants when they want to ‘future-proof’ their office move.
The demand for new or recently refurbished offices that meet, or even exceed, industry-standard environmental targets in prime commercial office space has become high, as it becomes more and more a priority for tenants. Many companies are serious about their long-term sustainability vision, and office rental is beginning to reflect this.
The need for businesses to have a greater long-term certainty, as well as having more robust return-to-work policies, is also key in driving the desire to invest in returning to larger, more traditional offices. Companies feel more secure in investing in the long-term and require office design and amenities to reflect this.
However, the impact of coworking trends is, of course, still being felt. The facilities popularised by these spaces remain a fixture in the in-demand offices of today’s market, with gyms and hospitality features, for instance, still very much a requirement – albeit furnished to a higher-end, more sustainable specification which are bespoke to the long-term occupier's needs.
What to do?
Operators should try to get behind this trend to capitalise on the financial and stability opportunities available. Rental income from high-end class A offices is increasing due to a lack of supply (as most large offices are not sufficiently equipped to meet the standard that is becoming so popular), whilst there is greater security offered by high-end offices with longer lease lengths.
To jump on this trend, it can be possible to repurpose and upgrade existing coworking set-ups into those that are suited for more permanent occupation – a potentially beneficial route to explore given the costs around building new offices. Projects which are starting from scratch should look to capitalise on the current demand to lock in tenants during this process and tailor developments to their needs.
So long as the trend of returning to the office continues, the demand for high-end, environmentally sustainable, and well-equipped offices is unlikely to fall. The key challenge for the industry is to keep up with demand and deter companies from settling for smaller, lower-grade places. Amid recurring headlines on delays to planning and construction, tenants and the wider market will be waiting with bated breath for new developments to be ready.
