The Occupiers View

Kostas Koultzis
How can corporate real estate occupiers plan for the future and what does this mean for prospective landlords? We flag up the issues that shouldn’t be overlooked.

Occupiers’ workplace requirements are constantly changing and it’s a time of market uncertainty, driven by Brexit concerns. It’s important that developers take on board the occupier’s perspective, so they can deliver workplace products that fulfil market expectation.

Understand the Workforce Needs

The workplace is an enabler. It should inspire and facilitate productivity, innovation and collaboration. We suggest that corporate occupiers begin with a good understanding of their workforce needs and a thorough exploration of their existing use of built assets. Consider agility in the light of workforce demographics – young professionals are still at the stage where they need desk-space; as careers progress, more collaboration and team-working spaces are needed. 

Consider the end Game

All good leases must come to an end. We recommend that this is borne in mind from the outset, with as much flexibility as possible built in to the lease. Landlords may be increasingly inclined towards flexibility, given the competition from multi-occupier providers such as WeWork. Liabilities should be clearly understood and any uncertainties cleared up before the lease begins. Corporate occupiers need to consider their potential future dilapidations liability in good time, and budget for that future obligation. Landlords are likely to require any alteration works to be reinstated shortly before the end of the lease. If tenants and landlords can work together from the outset to negotiate a satisfactory deal for both parties, a more successful tenancy ensues.

Focus on the Total Energy Cost

Tenants often don’t know enough about the potential impact of the Minimum Energy Efficiency Standards (MEES) 2018, brought about by the Energy Act 2011. At the moment, commercial buildings have an energy efficiency rating ranging from A to G. Rate F and rate G are the worst performing. The new law introduces a minimum standard of E and that means that buildings cannot be let unless they meet that standard. This will lead to an inability to sub-let space ranked as F or G, without doing upgrade works that may well be the responsibility of the landlord – however, the landlord may not see this as a priority. Occupiers should consider how the energy infrastructure (lighting and heating) could be configured, coordinating the landlord’s system with the fit-out requirements. A life-cycle review of the proposed installation will achieve the optimum balance between the capital cost and operational cost.

Think WELL

Staff health, wellbeing and performance is an important focus today. It makes good commercial sense – staff costs, including salaries and benefits, typically account for about 90 per cent of a business’s operating costs1. The building and workspace design have significant impact on productivity, creativity, and staff loyalty and retention. There is competitive advantage in embedding wellbeing considerations into the design and operational plans for building. The end building is then better suited to its users’ needs and can make the best contribution to their health, wellbeing and performance. Design the space for the people and the business perspective, not for the building construction and its constraints.

Look Holistically Across the Portfolio

It pays to look beyond an individual building. All too often, the focus is on creating a flagship building which doesn’t interact with the portfolio. It’s helpful to take a broader view of the assets, understand exactly what they comprise, then categorise and prioritise, before balancing the investment and planning the programmes and projects accordingly. Approaching this as a change initiative, not just another project or programme, is also helpful. Risks and benefits are more effectively managed via a controlled environment, and a consistent approach across the portfolio/programme will deliver quality, cost and schedule efficiencies.

Design with Agility in Mind

Landlords who offer space with design agility and affordable running costs will certainly attract greater interest. Tenants may be looking for more innovative movement through the building and options to be creative with the space. Flexibility is always important, with temporary walls now commonplace for fixed meeting room space, alongside meeting room pods as furniture items. Reducing energy consumption is key, as is the ability to back up efficient design and infrastructure with factual auditing of energy consumption. Landlords and tenants can also work together on the various occupier fit-out options, to reduce occupier impact and thus minimise dilapidations liabilities.

Be Diligent on the Detail

It’s important to understand the technical opportunities and restrictions presented by each part of the portfolio, both existing and upcoming. Consider whether the properties are fully aligned with corporate security, branding and digital infrastructure requirements. Thorough optioneering and due diligence studies will ensure true comparisons and early warning of any exceptional cost items. Physical and infrastructure resilience should be assessed, via a formal pre-acquisition survey, highlighting any unexpected costs within the condition and specification of the building fabric and services.

Optimum Workspace Results for Occupiers

Smarter workspace strategies can ensure that the space accurately reflects the business plan and actively enhances business performance. Faithful+Gould’s corporate real estate team supports clients with the issues described above, as part of our services across the whole life of assets. We explore individual corporate needs across capital project delivery programmes, ensuring optimum workspace results for occupiers.

Originally authored by Kevin Chrisp.

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