The provision of CAT+ space in the office market is increasing to match the growing demand for more flexible occupier workspaces, according to research.
A report by real estate adviser Avison Young says landlords are under increasing pressure to meet the demand for greater customer care and service, which has become a growing trend since the pandemic.
The company’s 2022 Forecast concludes that this had driven demand for a wider range of flexible work environments and minimisation of capital expenditure.
The number of short-term leases is also increasing along with the number of occupiers keen to take ‘ready to go’ space.
Avison Young states that before the pandemic, ‘plug and play’ space had been limited to the smaller end of the market, especially in central London, where the rental premium would justify the outlay for cost-conscious landlords.
However, now, flexible occupier solutions are in greater demand as more landlords are moving away from traditional shell and core and Cat A fit-outs, creating an increase in basic furniture provision and post-acquisition design, as well as fully fitted space.
As a result, the report adds, the relationship between landlord and tenant had become more collaborative, benefiting both groups.
The report says: “Whilst this has implications on capital expenditure, evidence suggests that this has potential upsides for both landlords and tenants, reducing voids and providing a rental premium, whilst giving occupiers an ‘off the shelf’ solution. Landlords need to take an active role in positioning their space to occupiers or risk falling behind.”
Occupiers gain the benefits of speed of moving and ability to visualise space, as well as reducing upfront and dilapidation costs. Landlords found that they could attract more tenants and let previously unoccupied Cat A space, driving down void rates and increasing the potential for occupier retention in the medium term, the report adds.
Premiums for Cat A+ fit-outs varied between £2 per square foot (PSF) and £8 psf, averaging at around £5 psf, says the consultant. Premiums were similar in London and the regions.
Rent-free periods were also significantly less generous, it adds, with lease terms becoming shorter, although this was a trend that was wider than Cat A+ space.
The report also pinpoints other office market trends including increasing investment in improving the environmental performance of buildings and the reshaping of workspace following more focus on health and wellbeing.
“We expect that 2022 will bring the landlord-tenant relationship even closer, to optimise the ways in which companies can not only get the best out of their workers but also act as an ‘attractor’ on a regular basis,” says the report.
Avison Young also identifies challenges in the retail estate sector, including supply chain bottlenecks and inflation affecting the cost of building.
Daryl Perry, UK head of insight at Avison Young, said that despite challenges the pandemic had provided an opportunity to re-examine how buildings could positively impact economies, communities and the environment.
“Investors, developers and occupiers are faced with the decision to either adapt to this rapidly changing landscape, with its many opportunities and challenges, or risk being left behind,” he said. “Data-based insight and sector specialist advice is essential to navigate this evolution.”
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