We have seen a much more positive and stabilising market develop in the south east after a tumultuous period of change, catalysed by the disastrous mini-Budget delivered by then-Chancellor, Kwasi Kwarteng, in September 2022.
Despite the economic challenges that remain, we do feel that there is a sense of opportunity in the air this year, both for the office and industrial market, as inflationary pressure subsides.
However, we would still urge clients to proceed with cautious optimism, because we are probably only halfway through the impact of interest rate rises on businesses.
What this means in practical terms, is that business leaders are making decisions after a period of inertia but are repricing due to that niggle of uncertainty that remains.
In spite of this, overall, we would say that business confidence is returning after the recent hiatus which saw commitment to any sort of capital expenditure become problematic – both for landlords and investors, as well as occupiers.
Thankfully, we are now seeing opportunities come on to the market, both in the office and industrial sectors, which is starting to create the momentum we hope to see continue in 2024.
What lies ahead for the rest of the year?
Despite the green shoots we mention above, there will be some tough property decisions this year.
Owner occupiers or investors may seek to rationalise their property holdings and potentially dispose of assets which are surplus to requirements.
Meanwhile office and industrial occupiers with lease events coming up in the next 18 months, may think about consolidating their space or locations, to meet their new workplace strategies.
This trend will continue for the foreseeable future, but it isn’t necessarily negative. It will see movement in the market, and will provide an opportunity repurpose secondary or older office stock across the south east.
This could be to residential use, or whatever is best for that particular area, but what this does is also deliver an opportunity to refurbish and create the right environment for businesses in the region.
Office occupiers continue to right-size their space requirements, which in many instances means downsizing due to hybrid working models.
However, because they are taking less space, there is more opportunity to take a better standard and quality of space.
In our experience, occupiers are not afraid to pay a higher premium on office space, to get the right quality and entice their workforces back to the workplace with a more exciting and collaborative place to work.
Flexibility will be key
This year, businesses will want flexibility, whether that’s with conventional office space or by moving into a flexible, serviced or co-working space.
As mentioned above, there is still a flight to quality, and ‘flex’ operators will need to balance the capital expenditure invested into making the office a fun, collaborative and interactive place to work, with the rents they can command, to make it stack up financially.
We are seeing several businesses move to a ‘core’ office and then take additional flex space. This is the ‘hub and spoke’ approach that we predicted would happen at the start of the pandemic, where businesses commit to a centralised hub in, say, London and ‘spokes’ out in the regions.
This is where locations such as the Thames Valley have really benefitted, where towns such as Reading and Bracknell, boasting good amenities as well as office space, have won out.
Decentralisation is also a theme which landlords and investors need to monitor, with both government departments and private businesses adopting this approach.
If you build or refurbish offices in the right location and to the right specification, occupiers will come.
This is what we have seen in places like Maidenhead, where the Elizabeth Line and its impact on east to west travel, has seen record rents be achieved – reaching the heady heights of £53.00 psf, from previous highs of just £39.00 psf.
