Matt Peake presents the opening remarks at Bisnow’s London State of Office event addressing some of the issues facing the occupational and investment markets.
The office sector is undoubtedly evolving as occupiers’ space requirements change to meet the needs of their business. Investors and developers must adapt and keep pace to ensure that their buildings are adequately future-proofed as places in which to work.
Matt suggests that owners of buildings are having to re-think the traditional leasing model, and valuers are having to consider the valuation implications from having a flexible operator within a building. The less proven covenants and shorter term income will command higher return expectations but a building’s value may be enhanced by the higher rental value created from agreeing a more flexible lease structure in part. The concept of flexible workplaces is about creating places where people want to work and considering how the physical space interacts with the digital space.
He acknowledges that London is seen as the global leader for flexible workspaces, but regional cities in the UK are evolving and there has been a notable pick-up in companies occupying buildings outside London. This is being driven by economic efficiencies given the current political back-drop, increase of ‘London’ quality product and relative affordability for young professionals – compared to the capital – which is helping to attract and retain top talent. ‘Regional office markets are not as exposed to Brexit related concerns as London as they are less reliant on inward investment and more reliant on local economic dynamics.’, he explains.
Investment in the regions was up a third last year compared to 2016, with overseas investors accounting for 40% of that. ‘New job creation aided by the much publicised private and public relocations has led to increased take-up. This, coupled with a lack of new development and conversion of older stock to residential use through permitted development rights, has strengthened the prospects for rental growth. Factor in a greater yield discount on offer, compared to Central London, and office investments in the top regional cities and parts of the South East would appear to offer better relative value than London at this point in the cycle’, Matt adds.