Guides & Advice

Commercial Real Estate Continues to Transition | Lockdown 3.0

Published: 19th January 2021
Area: Property Litigation

In an earlier blog, we considered the impact of Lockdown 2.0 on the commercial real estate market.

One of the trends we anticipated was expecting businesses to adapt by further trimming back their space requirements which were likely to be matched by a greater move to businesses taking short term flexible agreements, and a shift to serviced office space which can often be handed back at short notice.

Lockdown 3.0 - What now?

It is expected these trends will continue well into 2021 and beyond due, at least in part, to the uncertainty created by the further, possibly more open-ended lockdown 3.0. We’re already seeing, various flexible alternative types of space being made available by savvy landlords and taken up by increasingly agile tenants.

These flexible arrangements can take different forms. At one end of the spectrum, tenants are taking virtual desks (where companies may pay to have their registered office and post sent to etc) without a particular physical footprint. This is enabling companies to benefit from being registered at prestigious postcodes/locations without the hefty prime office rents. We see many commercial landlords offering this service. Universities are also offering their flexible working spaces and conference facilities adapting to the market and seeking to take advantage of the benefits of co-working spaces.

Moving along the range of options to actually taking physical space, this can involve renting hot desks, private offices, serviced offices.

We are also now seeing the rise of so called “managed offices”. This is taking the concept of serviced offices one step further and can include landlords working with landlords actively working with tenants to create and provide bespoke fully fitted out offices/collaboration space as specifically required by the tenants in return for monthly payments. This goes beyond simply providing a “plug and play” service. In addition, these providers, including a number of new entrants to the market, are competing to provide ever greater facilities ranging from cafes/bars to gyms and roof terrace relaxation space.

In short, there are many opportunities for both landlords and tenants to overhaul and modernise their working spaces and there is real merit in exploring the market now and seeking to seize those opportunities.

What else can we expect?

The Government has announced that a review of the commercial landlord and tenant legislation will be launched this year. It seems that there is a growing acknowledgement that the longstanding legislation does not always reflect or work as well as it should do in the current environment.

This review will consider potential changes to how commercial leases are governed with a view to helping ensure our high streets and town centres survive and thrive after the pandemic, as well as looking at how commercial landlords and tenants can collaborate more effectively and efficiently to “keep their finances stable, protect jobs and build back better”, according to Business Secretary, Alok Sharma

We will have to wait and see as to whether any proposed changes will be beneficial (and to whom) but for now the review does create more uncertainty in the market, not least as security of tenure of business tenants will be up for consideration. We will be monitoring this closely.

Contact us

For further advice on the options available to you as a landlord or as a tenant, please contact James Fownes or another real estate team in your local office.

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