Five hot topics for office occupiers in the year ahead

2020 has shifted the market for occupiers of office premises towards a more flexible environment (which many have been predicting for some time). As office tenants become increasingly conscious of their changing premises needs, we predict what will be the five key hot topics for 2021:

1. Flexibility
   
   

   The key theme that we expect to see continue into 2021 and beyond is the need for occupiers to have flexibility to deal with their changing requirements. Whether that be through flexible lease terms (such as break rights, less strict alienation provisions or expansion/contraction options) or through an increase in the use of serviced offices, occupiers will want to know that they can flex their occupation to adapt to changing business demands. This is, of course, nothing new – office tenants have always sought flexibility. But, in addition to the more 'traditional'demands from tenants that we’ve mentioned already, we’re also seeing a focus on futureproofing in other ways – including data connectivity requirements and ESG (which we’ll come on to later).

2. City centres vs regional hubs
   
   

   There has been much discussion as to the future of city centres (prompted largely by the increasing trend towards remote working, which was accelerated by Covid-19) – the wider implications on London in particular are covered elsewhere in this publication. We’re keenly watching out for whether businesses which have historically been headquartered in large cities will relocate to or include regional hubs elsewhere in the country, with perhaps increased use of flexible workshare type arrangements. We expect this discussion will continue into 2021 as businesses consider their options.

3. The future of offices
   
   

   During the past year, we’ve seen a reduction in office investment volumes as many businesses have adapted to facilitate remote working. It’s likely we’ll see a longer-term shift towards agility and flexible workspace and we’re expecting under-utilised office space to be repurposed for other uses. We’ve mentioned elsewhere in this publication which asset classes are likely to come up trumps as a result of this.

   Whilst there is much talk of the 'de-densification' of cities, we believe that offices will remain a key feature of business infrastructure. For the reasons mentioned above, the terms on which offices are occupied may well become more flexible but a high-quality physical built environment will, we expect, continue to be a core element of corporate premises strategy to promote collaboration and interaction.

4. Rebalancing of landlord/tenant relationship
   
   

   The relationship between landlord and tenant is changing – whilst we do not yet know to what extent we will see more radical, long-term change, we do expect the challenges brought by this year to continue for some time to come. These challenges have been met with various solutions – to name a few, we’ve seen a new Code of Practice for the commercial property sector (which encourages collaboration and risk-sharing), more common use of alternative rent structuring (turnover rents being a key example of this) and flexibility when it comes to rent concessions. Landlords and tenants are being encouraged to treat each other as 'economic partners'; we will see over the coming months how closely this principle is observed – watch this space.

5. ESG (Environmental Social Governance)
   
   ESG is being discussed on the boards of corporates and investment vehicles with the reputational impact and the ability to secure funding expected to increasingly take priority in the coming year. Occupying or investing in environmentally efficient or net zero carbon buildings can reduce energy costs, build brand value and demonstrate a commitment to corporate social responsibility to company stakeholders and employees. The social strand of ESG includes a focus on the health and wellbeing of occupiers and the community impact of a property, which we expect to see really coming to the fore this year.
   
   As the Government focuses on the green agenda, we should see property specific regulations such as the Minimum Energy Efficiency Standards being tightened in the coming year following the public consultation, meaning that in future commercial premises being sublet are likely to need an EPC rating of at least a C or B (instead of the current E rating). We also expect to continue to see developers and tenants focused on obtaining high BREEAM and LEED ratings and the WELL certification.