OFFICE MARKET: The pressure on the pause button is releasing
Office market commentary by Patrick Mattison. Director of Commercial Agency - Hampshire at Primmer Olds B.A.S.
In terms of commercial property the last 9 months have been particularly difficult for office Landlords with wide spread media coverage outlining the office was no more. That it’s purpose was now defunct and even post pandemic, everybody would be working from home indefinitely.
As a commercial agent on the front line dealing specifically within the office sector, along with the industrial / warehouse market, that kind of coverage has been frustrating to see as is far from reality.
Prior to this pandemic, the agile working model was beginning to gain more and more traction. The occurrence of coronavirus has only acted as an adrenaline shot to speed up the implementation.
My discussions with businesses over the past 3-6 months has made it very clear that for the majority the office will remain essential to operation but there will be the option of working from home part of a working week.
The news of 3 vaccines now seeking regulatory approval has been the trigger business decision makers have been waiting for. Businesses are already starting to make their moves, evident with transactional activity. There are some who have experienced exponential growth, who are recruiting and require more space, those who are remaining stable in numbers but require slightly less space due to agile working, and finally those who are stripping back to a core workforce and downsizing quite considerably. There are also sadly those who have been unable to weather the storm.
Apart from the latter, these requirements are in and will continue to be entering the market.
So what are we seeing in the market in terms of tangible activity which can be relied upon for market sentiment and insight?
We recently brought a 2,200 sq.ft office to the market in Romsey to let. The property is now under offer 2 weeks after release.
In September 2020 we completed on the sale of 5 offices, totalling circa 10,000 sq.ft, with a simultaneous letting (as bought by an investor) of 2,000 sq.ft, within a new barn style semi-rural office development in Ampfield, Romsey.
We also have offices under offer in Ower (2,000 sq.ft) Nursling (4,000 sq.ft) Upham (2,200 sq.ft) Kings Somborne (1,100 sq.ft), central Southampton (2,500 sq.ft), Segensworth (3,000 sq.ft) & Shedfield (1,500 sq.ft).
There are also occupiers who want to remain unchanged. A few weeks ago I was advising an occupier client on a lease renewal for a 7,000 sq.ft office in Eastleigh.
The fundamentals have not changed. Office occupiers require good quality open plan accommodation on good sized floor plates, in a location accessible by car or public transport with an appropriate parking ratio (different for urban to rural) and some form of amenity nearby. All of which is to attract and retain a workforce in an environment that influences collaboration, productivity and efficiency, but that also delivers the opportunity for work life balance and optimal well being.
Office Landlords will also be pleased to know that we are beginning to see the benefits of the relaxation of the Use Classes Order announced in September this year by Government.
Offices previously fell within use class ‘B1a offices’. Now that has been changed to use class ‘E’ which also incorporates uses that previously fell within classes B1b (research & development), B1c (light industrial), D1 (medical, educational) & part of D2 (Gyms and indoor recreation). There is now no need for a change of use planning application for occupiers in these use classes to occupy an office building. This has led to widening of the pool of prospective occupiers for Landlords without planning risk which in turn creates opportunity for swift transaction completion.
As an example, we recently brought an office to the to market in Shedfield, Southampton, to let, which received 3 offers from occupiers within care and medical industries. Terms have now been agreed with one of the parties and solicitors are drafting the contracts, without an Agreement for Lease linked to a planning application in sight!
Pre pandemic it was reported that people were prepared to spend more on personal health. As pressure on the NHS is realised and individuals turn to the private sector in search of quicker appointment times this trend is likely to be amplified resulting in a continuation of occupier appetite for offices from the medical and health sectors for the foreseeable future.
The supply of built Grade A offices has been generally low for many years due to limited new development and a substantial amount of stock being converted to residential following a previous relaxation of permitted development in 2013.
In my opinion, there are likely to be periods of demand volatility over the next 2-3 years However, provided the economy achieves growth projected, offices will remain the heart beat of many industries ensuring that offices will remain a solid investment sector.
If you are a Landlord and wish to discuss your office property or are a tenant wishing to dispose of your lease or search for new more appropriate premises please do make on contact on 023 8022 2292 or pmattison@primmeroldsbas.co.uk