Everyone is experiencing huge shifts in lifestyle and ways of working. These have had an impact on commercial office space, high streets, and inner city life.
“The challenge for occupiers seeking space has been firstly to work out whether they need more or less space than before. And secondly how well they are placed to navigate economic headwinds and cope with the increasing costs associated with running their organisations”. This is according to Big Nine report.
What are commercial tenants looking for?
For an example, in Leeds, Yorkshire, office occupiers are looking for higher quality space across smaller footprints.
Occupier uncertainty in making their next office acquisitions is reflected in take-up figures, which are slightly below long-term average levels.
But, for those tenants who do have active requirements in the market continue to be attracted to the best quality space.
Commercial property availability
Even though a number of tenants are looking for, or considering smaller quality office space, one of the key factors in less commercial property being available is due to the lack of development delivery in recent years. According to Business Desk, overall, space being marketed as available remains low relative to the long-term average level.
“The future development pipeline is constrained. Developments under construction in Leeds, for example, total 600,000 sq ft, which represents less than a year’s worth of take up even at current/post-Covid leasing levels.”
Prime rental vs secondary rental markets
“Despite some signs of decreasing demand, rent and rental incentives appear to be holding steady. This is particularly true at the prime end of the market as the occupiers who are willing to commit are competing for the best space they can afford. It therefore seems that tight supply is supporting rental levels and demand for good quality offices regionally, at least for now.”
Business Desk also quotes that “the secondary market continues to struggle however, with some office schemes being turned into residential. Ultimately, every occupier is looking for less but higher quality space.”
Mixed use of commercial buildings
The changing composition of city buildings and spaces see more mixed use of commercial buildings come into being. For example, plans for a mixed-use development, comprising student accommodation and an events venue, on a site at Leeds Arena that includes the Yorkshire Bank head office building have been given the green light.
This mixed use is likely to be seen more and more as cities change and adapt as the world continues to undergo enormous shifts in work and lifestyle choices.
Warehouse sector
It appears that the warehouse sector is also heading for a supply slump.
A lack of consented development land, coupled with rising construction costs and increased borrowing costs for developers is likely to result in fewer big box developments coming through the development pipeline, according to Lambert Smith Hampton (LSH).
What affect will this have?
LSH says that the “latest data shows that only 3.5 million sq ft of new space is to be delivered across the region in the next 12–24 months. With developers facing rapidly rising construction costs and a further 5.5 million sq ft of industrial space likely to be put on hold, there is likely to be upward pressure on rents across the region”.
What should warehouse prospective tenants do?
“Occupiers are being warned to act now to secure buildings as there is a potential “supply slump” on the horizon within the next 24 months in the big box (100,000 sq ft plus) warehouse sector”.
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