Tony Lorenz outlines possible developments in the commercial property market as organisations return to the office after more than a year of Work from Home and considers what these changes might mean for small and medium-sized businesses
As more and more of us return to the office, business owners are starting to think about their post-pandemic priorities. Clearly, the huge shift from Work from Home to an office model presents a raft of tricky considerations for employers. Trying to balance cost and space, safety and convenience is difficult at the best of times but right now it must be particularly daunting.
The good news is that small business owners are not alone; their changing priorities are reflected across the workspace market, which offers some great opportunities – and some difficulties – around organisations’ return to the office.
One big challenge for SMEs is increased demand for smaller office spaces. A recent BBC survey suggests that just 7 out of the top 50 UK employers are looking to bring back employees full-time, with most aiming to downsize through hot desking policies and flexible working. As a result, many more large employers will encroach on the smaller office market and contest spaces typically reserved for SME businesses.
But even with these challenges there are advantages as, after a year out of the office, businesses can afford to be pickier and demand more from their landlords.
We’re already seeing landlords move towards a more hotel-like serviced model, trading in empty, blank-canvas spaces for fully kitted out offices, replete with COVID-safe measures and luxury meeting rooms. This will make a huge difference to tenants. Not only does this model pass some of the costs back to the landlord, but improved working conditions act as a great incentive for employees hesitant to return to the office and give up the convenience and safety of working from home.
Tenants may also be able to enter more equitable rent and lease negotiations. Whereas larger office spaces typically used to be let for 5 to 10 years plus, we’re now seeing tenants successfully negotiate much shorter terms to allow for the uncertainty of COVID. Not only can tenants pick the terms that suit them, but we may also see fresh office spaces popping up on the market much more regularly, allowing for more choice and variety.
That said, there may be a sticking point with COVID clauses, which have been used across the retail, hospitality and leisure sectors to protect parties from financial risks during the COVID pandemic. Should a COVID outbreak force the bulk of staff to self-isolate or a business to shut down fully because of lockdown, such clauses protect the business from having to pay rent.
Hospitality businesses may still be able to incorporate these kinds of clauses into their contracts, but landlords are digging their heels in when it comes to offering COVID clauses for office space. As the last year has made clear, the vast majority of office-based businesses can operate near seamlessly from home, and if they are able to continue trading, to landlords’ minds, they are also able to pay rent. Their situation is materially different to that of hospitality and leisure businesses that couldn’t function if there was another lockdown brought on by a new COVID variant.
Commercial property moratorium
We’ll see further shifts on June 30, when the government’s replacement for the commercial property moratorium comes into play. After a year in which landlords have been prevented from resorting to evictions, landlords may, once more, have the ability to remove non-paying tenants from their properties. The government may extend time to pay arrears and even force landlords to give rent-free periods, but even so I expect to see more properties come onto the market as struggling businesses decide to restructure or go into CVAs.
The next few months will be fascinating as businesses and landlords enter ‘the new normal’ and develop new ways of working together after the challenges of the COVID pandemic. In the office market, especially for smaller tenants or tenants looking to take on less space, flexibility will be the name of the game, with some great deals to be snapped up by those willing to take the plunge ahead of the rest of the market…
Tony Lorenz is a boutique property consultant, and the founder of the Lorenz Consultancy. One of the best-known names in the London property market, he has 55 years of experience working with small to mid-size hospitality and leisure clients.
Landlords are trading in empty, blank-canvas spaces for fully kitted out offices, with COVID-safe measures and luxury meeting rooms. Photo shows walls painted with Microsafe by Hanford+Green, which incorporates Biomaster silver-ion technology to reduce the growth of harmful bacteria, fungi, moulds and SARS COV2, the virus that causes Covid-19. In testing to ISO 21702:2019, the anti-microbial paint was shown to reduce SARS-COV-2 on painted surfaces by >45.05% after 6 hours and >68.38% after 24 hours. Microsafe is available in all four Hanford+Green high-performance paint finishes – Matt, Low Sheen, Satin and Gloss – in any colour.