RARE’s Jonathan Mannings says reasons to be positive are at last Based on reality again
It’s been a disappointing start to what still promises to be an amazing year.
Pre-Christmas, I had hoped that the New Year would start with renewed energy and vigour, with the bulk of the “bad news” behind us and a confident spring in our collective step. And we had much to hope for. The vaccine was being rolled out; Brexit was done and people relying on “delays caused by COVID” were increasingly walking on thin ice. That was before Lockdown 3.0 which has once again brought inertia and uncertainty, not usually the bedfellows of progress.
The start of every new year provides us with the opportunity to reflect on the year just past and the year to come and to wonder at what the most likely changes will be. Whilst I don’t profess to have the clearest of crystal balls here are my thoughts on what may come.
We are undoubtedly navigating a period of the most rapid change ever witnessed. Whether it be the massive increase in home shopping forced upon us by three lockdowns or the greater use of “plastic” rather than cash in our buying habits. There has also been a greater focus on “local” in both our social activities and working habits. Commuting has almost died out and home working has, for the time being at least, become the new normal.
Personally, I think this trend will be reversed quicker than a Joe Biden executive order once lockdown ends – while some corporate occupiers have preached with almost messianic fervour that the change to home working will be a permanent feature, I have spoken to very few who want this to become the new norm.
People want interaction and whilst there is no getting away from the fact that many don’t miss the commute, working in an office, with a common goal and with a group of people that many see as friends rather than just work colleagues is something that is craved by the majority. That said, I believe the role of the office will see fundamental changes this year. Gone are the days when people were arranged in dull rows of task based desks carrying out dull mundane tasks.
Offices of the future will be modelled far more on the need to meet, to converse, to interact and to socialise. A commentator recently observed that the ideal office of the future would be a pub. Taking a design cue from this thought and working with market leaders in CGI we have modelled the office of the future in a building we are marketing at Theale. Rebranded as “The Ale House, Junction 12” the former 1100 Arlington Business Park will offer almost 33,000 sqft of high quality, socially interactive, workspace located just off a motorway junction and with oodles of parking making it both connected and once there, enjoyable to be in.The owners of Chiswick Park coined the phrase, “EnjoyWork.com” almost 20 years ago but they were ahead of their time and only now is that sales mantra beginning to become a reality for the majority.
One of the biggest challenges the property industry has yet to overcome is undoubtedly funding new development when the underlying principle on which it has been predicated since Noah was a boy, that of long leases, has ceased to exist. If nothing else, the global pandemic has meant that occupiers – tenants in old money – want much greater flexibility. That doesn’t just mean the occasional one off break with so many caveats needing to be implemented to render it almost inoperable, but true flexibility meaning they can downsize, upsize, cease a tenancy at a moments notice or take more space at the drop of a hat as and when the need arises.
Most received wisdom dictates that this just isn’t possible but new entrants into the market are questioning that. Plus X, a company set up to transform the flexible workspace landscape, is already providing state of the art workspaces that can be occupied by a wide range of companies from the conventional office occupier to the hybrid occupier requiring access to a wide range of mentoring and support facilities. At its latest centre in Brighton located in the dynamic Preston Barracks scheme on the fringe of the city centre, the company has created an exciting “business community” designed to offer financial support, mentoring, collaboration and networking opportunities as part of its basic offering. They have already been successful in attracting a range of entrepreneurial members including a company that has developed a bio-degradable plastic made from discarded fish scales.
As far as demand for offices is concerned this promises to be far stronger than many predict. Whilst we expect that space takes from each individual occupier maybe smaller, some by as much as 50%, the likelihood is that Grade A space will still be in strong demand and accordingly rents are unlikely to see the significant reductions some have predicted. With many of the secondary options already having been redeveloped or extensively refurbished, the current equilibrium between demand and supply is likely to be maintained throughout most of this year and supply shortages really only reach a peak in Q2 of 2022.
Demand in the Thames Valley is likely to emanate from the occupiers that have for many made this their location of choice. In particular we expect telecoms and pharma to be significant players and these will be joined by companies from some of the net beneficiaries of the “home shopping” boom and may include companies such as Amazon and Deliveroo. Whilst we expect that average size of transaction will fall in the 20-40,000 sqft bracket this year, there are still good grounds to expect that there will be more “mega deals” happening this year than seen in 2020 with deals of between 100-200,000 sq ft to be expected.
The investment market is poised to see a surge in activity this year in the Thames Valley region with highly active overseas and private equity investors likely to be leading the charge for out of town assets seen as increasingly attractive due to the comparatively high parking ratios available. Demand for town centre buildings will continue to thrive too and particularly as we begin to see real evidence of the much discussed “spoke and hub” effect, yields will be compressed from their current 5.75% to closer to 5%.
Ian Dury sang of “reasons to be cheerful” – you have to remain cheerful as an agent but at least the reasons now seem to be founded on reality rather than just hope and with that in mind we at Rare are looking forward to the next 11 months – there are after all only 343 shopping days until Christmas!!