The Occupier 2019 Predictions: Landlords Strike Back
This is the sixth in the 10-part series, The Occupier: 2019 Predictions.
The leasing environment for commercial space has been evolving over the past few years, not least because of the evolution of the serviced office product.
Whilst serviced offices have been an offering for a number of years, the breadth of the packages now in the market and the pace in which providers have launched them has put pressure on landlords and developers alike to strike back and reclaim some of the market. Change will be needed to make it happen given the shift in business model, relationship management approach and for some, mindset. 2018 was a year of planning, 2019 is set to be the year when we see those plans implemented. What can we expect to see and will changes be as transformational as they could be?
Providing a similar service/product has for some landlords been the initial response. British Land launched its flexible workspace brand Storey in 2017 and has since grown its portfolio of centres across London to 10. In the same year Blackstone took a majority share in The Office Group (TOG) and the Carlyle Group entered the market with the Uncommon brand. Others are set to follow suit in 2019, with imminent launches from the likes of LandSec (named Myo) in Victoria and The Crown Estate soon to launch its concept in Mayfair/St James’s.
Ready, Set, Go
Attracting a business to a space is half the battle, for most part serviced office providers are able to deploy their fully functioning centres as a means to win over a tenant with slick décor, design and services. Landlords are increasingly having to look at delivering their spaces to an enhanced finish, known as CAT A+, rather than just the more common practice of a landlord’s spec (be that shell & core or traditional finish - CAT A), in order to differentiate their spaces. This can start to look attractive to tenants as the extra effort put in by landlords offer time and cost benefits. It is along these lines that landlords will start to roll out managed solutions for their own properties, including the fit-out and running costs too. Whilst this is already undertaken by a number of serviced office providers, the arrival of landlords to this part of the market will be a departure from the norm for some and require additional in-house talent. At last landlords are waking up to the fact that someone else is eating their lunch and we expect this realisation to manifest itself through the delivery of more opportunities and models for tenants to take advantage of.
Flexible Lease Terms
Whilst some landlords are choosing to launch specific competing products, others are going down an alternative route. Legal & General for example with their ‘Capsule’ brand are seeking to make the process of leasing space more flexible by offering short-form leases, flexible lease terms whilst rolling in the fit-out too. They hope to capture those that want to retain the benefits of leasing from an established landlord without having to go to a serviced office operator. It is this approach that more landlords are expected to use, simplifying the leasing process whether that be a new lease or renewal. Oliver Morris, a partner at law firm Cripps states “the big attraction of serviced offices is cost certainty, speed and flexibility. We will see landlords move towards shorter and condensed leases and other initiatives and incentives to speed up the process and create the Model Commercial Lease.” Morris continues with “Landlords are expected to use more balanced leases which require less negotiation thereby enabling speedier transactions such as M&G Real Estate who base their leases on the Model Commercial Lease. This offers a much more tenant-friendly starting point.”
The serviced office brands provide a face to a business, not just from the outset of the transaction but throughout the tenure. It is this attention to relationships and loyalty that traditional landlords will require when striking back and evolving with the changing market conditions. 2019 will see tenant expectations be increasingly met by conventional leased space – the competition is on!