Empty commercial space & the cultural shift

VOIDS - On average there has been a dramatic shift in the commercial market. (2018) through to the present day the commercial market has found itself in an uncertain position. Whilst there is a high number of empty commercial space throughout the UK many commercial landlords that we speak to all ask us the same thing,

How are you?(Vision) finding so many tenants and how have you managed to maintain a 95% occupancy rate throughout the pandemic and now back to 100%?

?Our answer, Working cultures have changed dramatically (globally), business owners and individuals are now adopting time-saving activities in their working lives, this allows them to have an improved quality of working life (QWL), where more time can be spent with families and loved ones, also reducing daily cost including travel expenses. Interest rates and cost of living is increasing at an alarming rate whereas the average wage in some industries is remaining stagnant.

Empty Buildings

Many building owners are initially reluctant to invest into a non-income generated asset which is understandable, however, if additional investment was filtered into particular areas, then these non-performing assets would become an asset rather than a liability as such. Data has confirmed that if owners wish to see a significant change in enquiry levels leading to new tenant occupancy levels then something has to change. ?

Changes

Visually pleasing aesthetics, improved schematic design and layouts. Research has shown that positive environments and non-traditional layouts are what is ticking many boxes for businesses in this cultural shift. Investing into existing assets in the right areas would generate interest, but what happens then? If the current management team is not adapted to cope with multiple enquiries daily leading to multi-tenanted spaces, then building owners may fall at the first hurdle. Traditional agents are looking for that easy deal with as little complexities as possible, who wouldn't!.. however most are not geared up for dealing with multiple enquiries and do not wish to become ongoing managing agents. This is why working with an experienced Flex provider that has local knowledge backed with many years of experience in the sector may be a feasible approach. Investing should be a non-complex business model, and this is why choosing the right management company is so important. Vision offices

The Cultural Shift

The office market and working cultures have changed globally, so if building owners wish to benefit from these adaptions the returns could be forthcoming for example; A desk price model rather than a sqft pricing model would offer increased return rates. Also offering flexible terms rather than long contractual dates would appeal to the masses as long term commitments do not seem to be welcomed in the current climate. If these benefits are to be released then a mindset shift in the eyes of landlords needs to be considered.

Management agreements are becoming more and more popular. This management strategy is simple to understand and has many benefits. This management model works in very much the same way as a traditional commercial agent however, the added benefit of instructing an experienced Management company is they will continue to manage the building and all tenants (members) new and old on the landlord's behalf, creating a “hands-off” incom-generating asset. The other benefit for the owner is that the managing agent will be sharing its infrastructure. i.e. its back-office processes and working systems, its knowledge and experience in the flex market, including significant time creating a running business partnership. Management solutions

Flex Pricing ?– as a comparison, ?Desk price modelling has seen return rates of ￡400-￡450 per desk in outer city areas, which in partnership terms would return the building owner approx. ￡30 - ￡35 per sqft as opposed to traditional sqft pricing model of around ?￡18 - ￡20 per sqft

Based on outer London, south-east areas - (Vision offices data report,2022)

Based on the above model, if a building owner wishes to capture the benefit of a higher yield with a fully hands-off investment, they will need to consider an additional Capex investment. Associated costs being, short-term running costs, utility bills, and local staff costs will need to be factored in. If the objective is to make the building fit for purpose transforming a previously tired, traditional space into the perfect flex space then additional investment needs to be considered and adaptions need to be made (price per desk model). This of course, forms part of the initial business running costs but with a management model, all initial costs are paid directly back to the building owner as soon as the Flex workspace starts to generate income. Of course, all forecasting should be backed up with factual data from a verified source i.e. Management organisation reporting software and other resourcing tools.

The office culture has changed, employees ideal work-life balance has changed, so commercial landlords and professional managing agents may need to embrace these changes and adapt to suit market trends.

Companies are looking to build an ideal hybrid office, which would meet the demands of the flexible workforce. Employees want greater workplace flexibility, while employers are looking to maintain corporate culture. Cushman & Wakefield, Business world (2022)

forbes.com. Ft news. Cushman Wakefield. Vision office. vpag.co.uk Commercial management