Commercial real estate: is the office market getting 'back to business'?

Published: 31st August 2021
Area: Commercial

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Commercial real estate

In earlier blogs we considered the impact of Lockdown 2.0 and Lockdown 3.0 on the commercial real estate market. 

One of the trends 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. We expect these trends to continue well into 2021 and beyond.   

There is no doubt that this year has seen, various flexible alternative types of space being made available by savvy landlords and taken up by increasingly agile tenants. Tenants renting hot desks, private offices, serviced offices, and even taking space at so-called managed offices is also on the rise.  

So will the office market soon be back to “business as usual”?

As we emerge from restrictions, with more employees starting to return to the office, our city centres will become busier, but there is no doubt that the hybrid working model is here to stay.

Many businesses have seen the benefits of allowing staff to work from home both in financial terms and work / life balance. This means that there will likely not be such demand for traditional office space and the trends noted above will continue as the market consolidates.

This can only mean that there are many opportunities for both landlords and tenants to overhaul and continue to modernise their working spaces and there is real merit in exploring the market and seeking to seize those opportunities. 

What else can we expect?

We can also expect further disruption in the market following the Government’s announcement that it will bring in a binding arbitration scheme concerning arrears built up in the pandemic.

Essentially, this which will force landlords and tenants impacted by closures during the pandemic to agree terms on outstanding rental arrears, or have terms imposed by an arbitrator. It remains unclear as to whether this will be sector specific or have wider applicability.

We await further detail on how this is intended to work in practice and principles which will underpin the arbitration scheme. What it does mean is that the effect of the pandemic on landlord and tenant relationships will continue to reverberate well into next year. 

Innovative use of space is the future

It is not just traditional landlords and tenants who are seeking to leverage their property interests more effectively.  

The John Lewis Partnership, for example, has confirmed it is set to enter the landlord market by, in large part, making innovative use of its existing land. We understand that it is set to build circa 10,000 new houses / flats. They are in particular looking at sites above Waitrose supermarkets and land next to their distribution centres. By building upwards in this way, we can see that value of the foot print ought to increase, without having to buy additional land. 

We can expect other businesses to follow this lead and look harder at their existing property interests to see if they can be put to more profitable uses. 

For further information on issues discussed here, contact James Fownes or another member of the real estate disputes team in your local office. 

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James specialises in advising on and resolving all aspects of commercial landlord and tenant disputes, regularly involving dilapidations, forfeiture, the contentious aspects of lease renewals, service charge issues and the operation of break clauses.

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