The best offices must be in the right locations. There are areas on the fringe of the City with shiny new offices that remain vacant in a submarket separated by a few streets and a gulf in value.
Employees need to get to the office easily and once there, they want to do more than just work.
Proximity to transport hubs with decent local amenities remains important, meaning that a building may not be worth the capital expenditure if it is not located within the right neighbourhood.
Some of our clients own contiguous central London estates and enjoy the option to engage in placemaking to drive portfolio values – a strategy unavailable to single asset owners in the secondary and tertiary market.
Occupiers are also changing the way some landlords market and manage their space in order to maintain value.
Tenants that need cost certainty or have uncertain future space requirements are turning to landlords that can offer flexible office space solutions, which does not necessarily need to be best in class.
To meet the demand, there is a growing trend for landlords to reposition their assets and offer a fitted office or managed office ‘flex’ solution.
Areas can be occupied on short-term leases or licence agreements, and owners without the in-house capability can appoint third parties to manage services for the space.
Not every owner can improve the credentials of an underperforming asset through redevelopment.
Rents and yields are yet to move enough to unlock the development potential of some offices and with construction costs remaining high, upgrades may prove prohibitively expensive.
Looking at living
Owners that are unable to upgrade or offload their offices can take the alternative approach of repurposing the building to an alternative use.
The living sector remains popular, and the anticipation of increased housebuilding following the election is adding to the attraction of this asset class.
For example, Lloyds Banking Group recently announced plans to redevelop a decommissioned data centre and office site in Pudsey into social housing.
In addition to student accommodation and the build-to-rent market, there could be lucrative opportunities for hotel conversions, such as the redevelopment of the Old War Office.
However, even where owners have the expertise to navigate the planning and construction process and have the capital to deploy, they will still need sites in the right location.
Other investors have been tempted by the potential returns promised by the life sciences sector.
Location, underlying asset quality and occupier will similarly play a role in framing these strategies.
The building will need to be within the London-Oxbridge golden triangle and close to education or research hubs.
