What Office Occupiers Want

Metropolis researchers often hear of some unusual requests from office occupiers looking for the next base, which can trigger some sales opportunities for suppliers, so this week’s blog looks at some of the latest trends in office design.

A recent report by Lambert Smith Hampton examined some of the features of occupier demand. Slides, swings, ball ponds or a spot of mini golf were once the height of coolness. Revered and ridiculed in equal measure, the trend towards putting the fun factor into the office on the wish-list of technology and media start-ups. As with all fads, attitudes change and many have realised that the workforce and management need something different. That difference is functionality. The expectations that the workforce has on the workplace have largely been a result of technology, demographic and employment changes. It is these factors that have and will continue to evolve the thinking and implementation of design. The emphasis is now more on productivity and sustainability, increasingly being cost effective.

Technology has increasingly dictated change over the past decade. New technologies have tended to dispense with data rooms, to fixed desk PCs, to landline phones. The fast pace of technological change has
made it difficult to future proof office design. Technology is making the tools we use more portable, more personal and increasingly smaller, space can be therefore be devoted to more productive, collaborative and engaging activities rather than static desk spaces.

Designing a space that is functional and productive for the entire workforce is a difficult task, when it is required to retain the company culture and enhance the future one. Functional and productive design includes areas for team-work, quiet spaces, meeting rooms and private offices are all elements that need to be given some thought. If specific features are wanted, they must hold meaning and have purpose.. A
games room or even a fully functioning kitchen can help to create a shared space for everyone to come together.

The recent locational flexibility of occupiers has been underlined by recent occupier decisions. Media groups such as McCann relocating to the City of London, WPP to the Southbank or pharmaceutical Novartis’ move to White City, illustrate that old certainties about search areas are breaking down. Traditional certainties of lawyers in Midtown, hedge funds in Mayfair and government departments in Victoria are breaking down. For decades business sectors have been wedded to certain postcodes, submarkets and even streets. Whilst this has been slowly changing over recent years, the current pace is expected to step up a notch, as tenants are now more open-minded about their next workplace than ever before.

The main driver of change is the growth of technology that creates a truly connected workforce. The ability for people to work anywhere, at any time, has caused a re-imagination of the office and the role it plays. This technology revolution has changed people’s expectations of working practices, meaning the workplace is having to adapt. As a result, tenants are becoming ever more open to the type of space that they will operate from. Secondly, the workforce itself has changed. A wide range of ages in the office means a more complex and thoughtful approach to providing the right kind
of working environment.

In addition, the boundaries of London’s office market have grown over the past 25 years as new development has rippled westwards to Paddington, eastwards to Canary Wharf, north and south with King’s Cross and Southbank respectively. 2019 will see those boundaries push further out as regeneration, and improving transport links crystallise. Stratford and the Olympic Park is gaining leasing momentum. So too is White City to the west.

Some analysts think that offices will evolve to become more like coworking, with occupier space becomes about much more than just a building or a physical space to go and work in, it’s also an international supportive community.

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The Triggers for Relocation

Recent research by Metropolis Property Research on its 6,400 office occupier relocation leads in 2018, suggested that nearly 50% of moves were triggered in some part by lease events, either expiries or break options. Some 3,112 office leads made some reference to a lease expiry in 2018. Of the remainder, the majority were mostly either expansions, start-ups or mergers.

The research chimes with a recent report on office occupiers the Thames Valley by property consultant Lambert Smith Hampton (LSH).  It says that triggers for 2018 corporate relocation remain more or less on trend with the previous 5 years. LSH say that moves predicated on a lease event are slightly less prevalent at 40% than they were when the research was started in 2012 (43%), but still make up a large part of the market. For example see Riverbed Technology (Metropolis lead id 120785), JDA International (id 122285) and Midwich (id 121691) moves in Bracknell alone in 2018 . In 2015-16, the percentage of relocations triggered by a lease event was down to 36%, however LSH point to a high proportion of merger and acquisition activity (20%) that same year which forced some occupiers to relocate to accommodate such activity ahead of a lease expiry or break clause.

In 2012-13, expansion accounted for 34% of relocation triggers, however this has since grown to 38% in 2018 while merger and acquisition activity has reduced to 9%. LSH use the example of significant corporate expansion is provided by Oxford Nanopore Technologies (Metropolis lead id 121255) which freehold purchased the Danby Building on Oxford Science Park. The 55,000 sq ft deal came alongside their pre-let of a 35,000 sq ft manufacturing/R&D base at Harwell. This type of occupier is synonymous with the current Oxfordshire market; huge expansion as funding is being increased both from the University and globally.

Location, location, location remains the predominant criteria when relocating and some 37% to 50% of occupiers specify moves to particular districts over the last 6 years, but it is always the majority influencer. Alongside location is betterment, as occupiers desire to improve the quality of their working environment. The number of companies looking for better quality workspace has increased from 22% in 2012 to 34% in 2018. At the same time cost has reduced in importance over the period of the research from 22% down to 11%, albeit up from 6% in 2016.

Occupiers are more and more seeking better working environments in order to attract and retain the best staff and maximise productivity. LSH point to corporate occupiers coming to the market seeking more cost effective space only to change their minds and commit to better space having reviewed and evaluated the options. Mobile Broadband Networks (Metropolis id 121223) were seeking sub £30 per sq ft space in Reading only to move to Thames Tower at £35 per sq ft despite there being cheaper space available nearby. Occupiers often lean towards better space both in terms of quality and amenity once options are shortlisted

Looking into the future, Some 3,000 occupiers are looking for space in 2019 in advance of lease events with more at an early stage in advance of 2020 lease events. The number of occupiers asking for more fitted and furnished office space has risen considerably. This may be as a result of flexibility and Brexit concerns and is related with the demand for shorter leases.

Paul Ives Metropolis Head of Research. paul@metroinfo.co.uk

Thames Valley gives mixed signals

A new report from Lambert Smith Hampton (LSH) on the Thames Valley office market reveals a mixture of trends.  LSH report 126 enquiries (over 5,000 sq ft) in Q1 2017, an increase of 31% compared with the 96 received in the previous quarter, however these are mainly made up of smaller enquiries and LSH say that requirements for units of over 30,000 sq ft are running well below the long term average.

Take-up in Q1 2017 was 425,352 sq ft, a fall of 3 % from the 439,331 sq ft transacted in the previous quarter and 18.6% below Q1 2016’s total of 522,770 sq ft. The total is below the five-year average take-up of 482,169 sq ft and given the drop in large enquiries, take-up may suffer in upcoming quarters. Large deals included: MediaWorks, White City – 70,000 sq ft acquired by Net-a-Porter and Tor, Maidenhead – 40,000 sq ft letting to Rank Group.  Moves underway include Body Shop, Maersk, Macquarie Bank and EDF Energy.

The active sectors in Q1 2017 were professional (31%), technology, media and communications (25%) and pharmaceuticals (14%).  LSH say that 74% of all office take up in Q1 2017 was centred on just five of the 14 centres – Blackwater Valley, Bracknell, Maidenhead, Oxford and Reading. Reading continues to attract some big names and it’s key Business Parks are home to some of the world’s largest high-tech firms including Microsoft, Oracle, Cisco, Symantec, Logica CMG, Huawei, Veritas and more recently, major corporates such as Bayer and Thales.
Metropolis has published 260 stories about the relocation plans of 260 Thames Valley and South East companies in the last three months; including 75 companies searching for office space. In addition, it has reported on the plans of a further 60 companies that are approaching lease decisions.
The outlook for the Thames Valley seems to be for a slightly muted summer 2017, but with the recent rating revaluation and the nearing of the completion of the Elizabeth line, the near-term will see more occupiers relocating further out of Central London along the Thames Valley from early 2018.

Thames Valley sees take-up rise

A recent report from consultant Lambert Smith Hampton on the Thames Valley office market reported an impressive Q2 2015, with take-up increasing by 157%.

Total take-up of offices (over 5,000 sq ft) in Q2 2015 was 540,411 sq ft, compared with 210,348 sq ft in the same period in 2014. Total take-up in 2015 so far is 896,419 sq ft, compared with just 506,787 sq ft at the end of Q2 2014 – an increase of 77% year on year. LSH also report that 400,000 sq ft of further deals are under offer.

Some of the larger recent deals, all reported on Metropolis, include: Gartner taking 107,000 sq ft at Tamesis, Staines; Maersk Shipping taking 41,000 sq ft at The Point, Maidenhead; Hitachi Data Systems taking 35,817 sq ft at Capitol, Bracknell; South Oxfordshire District Council taking 33,250 sq ft at 135 Milton Park, Abingdon; Markerstudy taking 20,966 sq ft at Waterside House, Uxbridge; Aetna taking 20,128 sq ft at 25 Templer Avenue, Farnborough Business Park.

LSH recorded 5,000 new office inquiries during Q2 2015 which is slightly down on a year ago. New requirements on Metropolis include Biogen, Thales, Bayer, Osram and Worley Parsons. Named demand has increased significantly in the last two years and is currently estimated to stand at approximately 6.5m sq ft. There is a growing trend of tenants decentralising from central London locations to the Thames Valley and Heathrow areas. It has also been noted that occupiers are increasingly looking for different space in the Thames Valley with a more basic office environment with flexible floorplates becoming popular.

Top towns forecast for 2014

Property consultant Lambert Smith Hampton has ranked 65 of the largest towns and cities outside London based on their economic vitality and the likelihood of an active property market in 2014

The top 10 towns and cities in the UK Vitality Index are:

Cambridge
Guildford
Brighton
St Albans
Reading
Wokingham
Maidenhead
Warwick
Milton Keynes
Bournemouth, Edinburgh, Reigate (joint)

Research by Metropolis particularly underscores the prospects for Cambridge (41 moves or requirements due in 2014); Reading (52) and Edinburgh (150).