Every quarter we post our Central London office rent guide and soon after, I’ll write a commentary on the state of the market.
It has become a cliché to point out that we face exceptional circumstances right now – but it’s no less true! As a result, we are keeping our rent guide at the same level as it was immediately before lockdown towards the end of March, when the market came to a standstill. This may seem like a bit of a cop out, but there have not been many new deals to report. The market remains very dormant.
Office landlords & tenants are in a stand-off
Landlords are reluctant to drop quoting rents and many argue there is a scarcity of supply – so rents should remain high! They hope that when the music starts again normal business will resume. Commuters will merrily hop back onto public transport and Central London will start to hum again.
They may be right, but sitting (alone) in our office in Marylebone, I am looking out at eerily empty streets below. Numerous clients continue to work from home and a huge institutional landlord in the City told me the other day they have no plans at all for their staff to go back to the office in the foreseeable future. Have a look at our thoughts on the future of London office space in the “new normal”.
We are clearly in a stand-off situation. On the supply side, landlords are optimistic by nature. Amid the chaos, they need to talk a good game in order to keep their lenders sweet. On the demand side, few tenants would consider committing to long term leases (say 2 years plus) until they can judge the state of the market and the longer term economic consequences to all businesses of Covid 19. My colleague Michael Fraser has made the case for a fundamental re-think on the landlord-tenant relationship.
Few Office tenants would consider committing to long term leases until they can judge the state of the market and the longer term economic consequences to all businesses of Covid 19
Rent is only part of the story with office tenants facing multiple issues
Over time there will be clarity and I will be able to report on rents again. In the meantime, rent is only part of the story. Other existential tenant led issues are emerging and some of them are really interesting. I won’t comment in detail here, but here’s a list of some fundamental issues we are starting to grapple with for our clients:
- Leases incorporating more options to break in order to help manage uncertainty
- Covid Clauses to provide protection in the event of a future lockdown.
- The size of offices required needs to be looked at again by all businesses.
- Capex moving into and out of office space is being re-examined by occupiers. Some landlords are already taking the initiative in offering fitted out office space, rather than the usual empty shell.
- And why do rent reviews have to be “upward only”?
Historically traditional landlords have resisted flex requirements because they don’t sit comfortably with their investment criteria. I can’t see that approach lasting. Some tenants will increasingly see big, shiny offices as more of a luxury than an absolute necessity.
We look forward to commenting on these subjects in future blog posts.
Landlords have resisted flexible requirements because they don’t sit comfortably with their investment criteria. But some tenants will increasingly see big, shiny offices as more of a luxury than an absolute necessity.