To continue to secure lettings over the next 10 years and beyond, landlords must be open to ever changing demands, which should lead to an increase in yield for them and better sustainability for the occupier.
For a growing number of businesses, offices are no longer just places where you do your job – they’re creative hubs with social spaces that boost the productivity and wellbeing of employees. Ideally, they should also form part of, and reflect, the brand of the business from an internal and external perspective.
Innovative businesses and startups are one of the biggest drivers behind these changes and needs. These high-growth companies are demanding more from their space and that’s having a knock-on effect on the way buildings are being designed as well as how landlords and their advisors operate.
Ambitious and forward thinking businesses tend to move from small spaces to larger ones in short time periods. A traditional 10 or 20-year lease is too inflexible, so smaller, short-term leases are now a priority for many high-growth companies.
For funds and landlords though, this type of lease is usually at the bottom of their wish list. A stable, low maintenance tenant willing to set up home in their property for the long term makes their life much easier and results in a steady income stream. However, times are rapidly changing in line with tenant demands. Savvy landlords are recognising that although a smaller, short-term lease may be higher risk and more hands on, that also means a higher rent can be charged making it a more profitable option.
Flexible floor plates and modern interiors are a given, so tenants now demand far more from their space.
For creative businesses in particular, a traditional reception desk and some pot plants no longer cut the mustard. Many modern trend setting companies want to see their brand reflected throughout their space which means more daring requests have to be made to the landlord from the Mini Cooper reception desk to the ceiling high statute.
For traditional landlords, these requests can be a headache as there is still a perception that anything out of the ordinary will upset neighbouring tenants and this can often lead to long and drawn out lease negotiations. However, landlords must be more open to ideas to secure future tenancies.
“Offices are no longer just places where you do your job - they’re creative hubs with social spaces that boost the productivity and wellbeing of employees”
Every tenant wants a well-connected building but increasingly that means more than just a great internet connection.
Integrating new technology is essential to help boost productivity and efficiencies. There are already moves by some firms to implement technology which tracks employees in a building, showing where there’s free and under-utilised space. It’s also possible for software to check phone calendars before an employee arrives into work which establishes what type of desk and space they’ll need for the day ahead.
In the longer term, this also raises questions about the size of future workspaces. As technology and the use of artificial intelligence (AI) increases, some job functions may no longer be required which may mean future requests for smaller offices.
To accommodate this potential change and emerging technology, buildings must be designed to adapt to both without a major redevelopment.
Faster legal process
In the same way that buildings and landlords need to adapt to changing tenants’ needs, so does the legal industry. Standard provisions in leases can be prohibitive and cause battles and time delays with landlords. When acting for tenants, we are constantly trying to push the landlord to take more responsibility for the building they own. If this was the market norm, it would take weeks off unnecessary due diligence and negotiation.
Real estate used to be about four walls and a roof but the new breed of tenant is turning it on its head. Although many landlords still have the comfort blanket of larger firms that want a traditional office, adaptability must be top of their agenda. To continue to secure lettings over the next 10 years and beyond, landlords must be open to ever changing demands, which should lead to an increase in yield for them and better sustainability for the occupier.