Tech sector still booming
A few weeks back, I had a meeting with the CEO of a company who was looking for a substantial amount of office space in London. At the time, he was amazed by the lack options, the long lead times and, most of all, by how much rents had risen.
Now, in the midst of the coronavirus crisis, a move is something that would have slipped a long way down his ‘to do list’, while he concentrates on dealing with the effects of the crisis on his business. And, he is probably unsure about what it all means for his office requirements, too.
So how will occupier demand be affected over the coming months? It’s still early days, but here are some of the emerging issues:
Timing is key: The way our occupier clients are responding to the crisis has varied according to how quickly they need to move. Those who are coming close to the end of a lease (or a break in one) have got two main options – the first is to proceed with their planned relocation, although there may well be issues with both the moving and the fit-out process. The second is to try and negotiate a lease extension on their existing premises, which may not be ideal for anything other than the very short term. For any landlords and investors whose tenants find themselves in this position, the advice is simple – open up a dialogue and be as flexible as you can.
If the need to move is not quite so pressing, some occupiers will wait for rents to soften. Others will use the time to bring deals to the point of conclusion and then sit tight until things settle before signing.
As a result, the market is likely to be running at two very different speeds. Office space that is vacant, or about to be, is likely to be subject to negotiation. Pre-lets with longer lead times can simply wait for the conditions to ease.
Tech sector still booming: In recent years, London’s tech sector has seen some substantial growth and their demand for office space has grown with it. We are now even more reliant on digital communications, so it’s no surprise to find their confidence remains high. The coronavirus is not even putting the brakes on their recruitment plans. A tech occupier I spoke to earlier told me they were currently doing lots of online interviews and onboarding and then sending their new employees equipment so they could start straight away. That kind of growth in the headcount has got to be good news moving forwards.
A ‘V’ shaped dip with a rapid recovery? Quite a few commentators are expecting the serviced office sector to take a big hit from Covid-19. And they have a point, there will be a substantial fall in both applications and renewals and some of the less wel-run operations may find themselves in difficulties. My view, though, is most are far more robust than we realise and the worst of the disruption is likely occur over a relatively short time period.
Those who deal with larger corporates, in contrast, are likely to be able to weather the storm far better, as they tend to have the security of longer contracts. However, once we are back on the road to recovery there will be plenty of new start-ups and that will be to the benefit of both the serviced sector and smaller offices.
And what about after that? Unsurprisingly, we are unlikely to see much, if any, movement over the coming weeks. However, once we return to anything like normality, there will be a flurry of activity and negotiations, while we all try to adjust to our new economic realities. As ever, those who are able to think on their feet will do best, because it will bring plenty of new opportunities with it, too.