Could the work-from-home revolution be coming to an end? We hear from some of the UK’s top commercial property experts, who share their views and advice for business owners
Commercial property has been an unsteady market in the UK. The pandemic, and the economic pressures which followed, caused a huge shift relating to how and where businesses operate. What started as government lockdown orders to work from home evolved into a nationwide drive towards home and hybrid working, leaving the traditional office environment on the brink of downfall.
However, the tide appears to be turning. The land and property experts at BTF Partnership are seeing a clear movement away from WFH (working from home) and a return to office working. Whilst many businesses allow a hybrid format, the team say that it is very clear that private sector employers see the benefits of collaboration from a return to the office.
In conjunction with this, BTF Partnership is also witnessing an increased ‘flight to quality’, with employers seeking to ensure office space provides a better working environment to improve staff recruitment and retention prospects. Business owners are looking to secure higher-quality modern offices, both in terms of location and specification.
Will Hinckley, commercial director at BTF Partnership, explains that despite what is said in the national press, his experience is that there is still good demand for traditional offices in many of the Kent towns. “Demand is largely, but not exclusively, from the service sector and this, combined with a limited supply of good modern accommodation, has led to stable, and in some locations, rising rents. There has been an improvement in conditions for serviced offices and smaller office space available on ‘easy-in easy-out’ terms, as well as consistent demand for well-managed modern space in good locations and generally strong rents.”
These conditions, he identifies, have been driven by individuals or companies who wish to avoid commuting to London but don’t wish to or can’t work from home. Allied with this, landlords in some locations have sought to capitalise on the sector by converting existing, more traditional offices into small business hubs, which are let on a room-by-room basis. Will adds: “We have successfully launched a number of these, which now run at or close to full capacity throughout the year, including Marlowe Business Centre in Canterbury and Clover House in Whitstable.”
The Kent Property Market Report, produced by Caxtons Property Consultants, alongside Kent County Council and Locate in Kent, provides some interesting insights into the commercial landscape, particularly surrounding working from home and hybrid working. It reveals that many companies have changed the way they operate post-pandemic and some are still deciding on the right combination of working from home and going into the office. This has played to the strengths of the flexible office market, resulting in a surge in the availability and demand for flexible and co-working space in Kent – something that is predicted to continue far into 2023.
Kent, and the wider South East, is slowly seeing an increase in activity in the office market, proving that we are out of the pandemic doldrums as businesses reconsider their office spaces. Looking at rent, the South East saw rental increases of up to 9% in 2022. Kent compares favourably with an increase of 7% over the last 12 months, an increase of 16% over a five-year period. The average rent in Kent in 2022 was £18 per sq ft, up from £16.91 per sq ft in 2021. Some Kent districts, including Maidstone, Folkestone and Dartford, have seen a 14% increase in the last year.
Charlotte Laherty, director and head of commercial property management at Caxtons, recognises that post-pandemic, there is greater flexibility for both employers and employees – be that working in the office, from home or a hybrid approach. “Whether or not the number of people working from home has plateaued, only time will tell,” she says. “As far as employees are concerned, generally speaking, it seems that the younger, less family-oriented employees with smaller homes are more willing to return to the office, with older, more family-oriented ones wanting to retain as much flexibility as possible. Employees are still requiring hybrid or even full working from home, and employers may find themselves at a disadvantage in a tight labour market if they do not offer this.”
When it comes to commercial office space, it isn’t a one-size-fits-all approach. Charlotte points out that, if you already have premises, it is worth thinking about whether they can be adapted to meet your needs because paying dilapidation, removal costs and fitting out new premises is expensive. She adds: “If you are moving, you should think about location in relation to infrastructure, where your employees live, size, condition, rent and terms. These days, it’s even more important than before to think about running costs such as heating, lighting and so on. Modern premises may have solar panels and other energy-saving benefits and will almost certainly be cheaper to run. Most importantly, when planning any changes, think about the future plans of the business and employee needs – not just what is needed now.”
Since forming in 1997, Locate in Kent has helped over 1,000 companies move to, set up or expand in Kent, creating or retaining 70,165 jobs. The team identify that the acceleration in demand for flexible and hybrid working during the height of the Covid pandemic hasn’t gone away, and this comes at the expense of traditional office-based desk and commercial space. “We continue to see evidence of businesses reducing their office footprint when lease breaks come up or end,” says Karima Kamel, business development manager at Locate in Kent. “The county’s network of co-working hubs has flourished since 2020, with more than 50 locations now open offering hot desks and other flexible office space.”
Locate in Kent handles significant numbers of enquiries for industrial property for logistics and distribution. Demand for these sectors, the team say, remains strong following the e-commerce boom that increased during and post-pandemic. “Vacancy rates are low, and the main challenge is the pressure on industrial space, resulting in higher rents for occupiers,” notes Karina. “Other sectors, such as manufacturing, generally require longer-term leases or freehold properties.”
Karina says that there is an opportunity for Kent to attract London-based companies that find themselves paying more and more in commercial rents due to the loss of employment land in the capital and the resulting increase in rental values. Considering locations outside the M25 will most likely translate into a rental saving for London-based businesses, with equally good access to the M25 and beyond, as well as high-speed train connections.
Karina’s advice is to begin your search for commercial premises well in advance of your existing lease ending. “Locate in Kent’s comprehensive commercial property portal is a useful start, and our team is available should you have any questions. We have commercial property lawyers within our network of corporate partners that can support on any legal questions you might have.” She continues: “Think about location and length of tenure, as well as sustainability. Energy costs and efficiencies are key considerations right now for any SME. Be ready. Consider green accreditations that measure the sustainability of commercial properties such as BREEAM. Don’t be caught out by the tightening of energy efficiency rules for UK commercial property coming into force in April 2023.”
Securing good quality accommodation to provide the best possible working environment remains imperative in 2023. Commercial property occupiers are downsizing, or rightsizing, and national property adviser Vail Williams is often seeing businesses move to approximately 50% of their current floor space while paying similar costs in return for a better quality of space. Companies are still revisiting their accommodation plans to provide the best workplace to attract people as the search for talent continues.
So, how can employers attract staff back into the office? The team at Vail Williams, which has regional offices in Crawley, Brighton and Woking, recommend creating an environment that offers employees a better experience in the office than they have at home. “Design your office for an inclusive environment,” says regional managing partner David Thomas. “Ensure that you have the right culture and values to entice people to want to continue to work with you, or to attract new talent. Increase social engagement and create events and opportunities to give people a reason to connect – both in the office environment and outside of it. Finally, maintain flexibility to review what is working and what is not.”
With any commercial property matter, Vail Williams partner Steve Berrett and associate Mikael Goldsmith urge businesses to take independent professional advice. “While it might seem expensive to have a surveyor acting on your behalf, it will pay dividends fivefold in the long term as commercial leases can be hard to negotiate without having that experienced advice,” they say. “We see a lot of unrepresented occupiers out there and we find that some companies quite often miss out on buildings or opportunities where they haven’t had a surveyor represent them from the outset.”
For example, rental incentives, repairing clauses and specific tenant rights may be negotiated into a lease. This is dependent on the condition of the building and other factors, of course. Likewise, in the purchase of a commercial property, it’s important to seek professional advice from a surveyor as to the building’s condition and any defects, and whether its intended use meets with permitted use for the building so that the business is able to trade freely, the pair add.
Anyone taking on new premises must be aware of the Revaluation of Business Rates, which will be changing on April 1 2023. Steve and Mikael explain: “The valuation of premises on 1 April 2021 will be used to calculate an occupier’s business rates liability for the next rating period. Some sectors, like retail, are likely to see a substantial fall in rateable values and office will remain roughly the same, but industrial, manufacturing and logistics occupiers will experience a significant increase due to a boom in the sector at the height of the pandemic. Coupled with rising utility costs it could mean significantly higher overall costs than a tenant may have been expecting on industrial premises.”
On top of this, changes in EPC legislation – the energy ratings for commercial properties – will impact the commercial property market. From 1 April 2023, all let properties with an EPC rating will need to have a minimum rating of E, and From 1 April 2027, it is likely that properties will need to have an EPC rating of C before being let, increasing to a B rating by 1 April 2030. “This will impact banks and lenders that may be averse to lending on those properties below a certain threshold making raising capital difficult,” say Steve and Mikael. “We are currently seeing a lot of landlords reviewing their refurbishment plans on both vacant and occupied premises.”
It’s a mixed bag for South East commercial property in 2023. Is home working here to stay, will flexibility and hybrid lead the way, or will we see businesses revert to traditional office working? Only time will tell…
Things to consider when taking on new office premises, according to BTF Partnership
Location: Location is one of the key drivers to a business. Historically, this has been determined solely by the business owner, however, now, staff needs have moved to the forefront. Staff increasingly want to be in a location close to amenities such as shops and restaurants, with some also seeking access to gyms and other leisure facilities.
Accessibility: As a business owner, you must ensure that your offices suit employees’ requirements for getting to and from work and accessing their customers – whether that means access to parking, public transport, walking and/or cycle routes.
Specification: The ‘flight to quality’ means that businesses are seeking better quality accommodation for staff, with higher demand for offices with air-conditioning in the summer months and a reliable heating solution in winter.
Broadband: A significant factor for many occupiers is the ability to connect to super-fast or fibre broadband, a factor which has made some parts of Kent no-go locations for offices.
Lease lengths: Tenants are favouring short lease commitments whereas often, landlords are not prepared to commit to capital expenditure unless the tenants sign up for longer leases. Tenants who take short-term leases and/or cheap rents will invariably end up “getting what they have paid for”.
Rent and incentives: Rents for the best offices are still strong and, in some cases, rising. Landlords are generally reluctant to agree to large incentives, like rent-free periods, but may be prepared to offer more attractive terms to a good quality tenant who is prepared to commit to a longer-term lease.
Rates: The Rateable Value (RV) of all commercial properties have recently been reassessed, which has resulted in increased rates obligations from April 2023 for some occupiers. A prudent occupier should check the rating list to ensure they know what is likely to happen to their rates liability.
Energy efficiency and EPCs: All commercial properties now need to have an EPC (Energy Efficiency Rating) before they can be let, and landlords may not let sub-standard premises, with an assessment in bands F or G. As the government seeks to further reduce damage to the environment, we are likely to see the EPC threshold raised very soon – probably to band C.
Tenant quality: Tenants should be aware that some landlords are prepared to say no to some occupiers and hold out for the right tenant. A well-prepared business that is keen to secure a property should therefore ensure that they present the best impression of itself from the start and show that the business is able to meet the lease obligations.
Magrock lays foundations for the future in Kings Hill
Fast-growing construction company Magrock is moving to larger premises in Kings Hill, Kent as it prepares for further expansion.
Magrock, which is currently based in Ashford, has taken a lease on 2,965 sq ft of office space in 39 Kings Hill Avenue, a single-storey building with adjacent car parking set in landscaped surroundings.
Since it was launched in 2016, the independently-owned business has grown to have 60 employees and an annual turnover of £50 million. It operates as a main contractor specialising in new build, fit out and refurbishment projects.
Founder and managing director Richard Brewer said: “Our move to Kings Hill marks the next stage in the development of Magrock. With a substantial order book and a sustainable financial footing, the company is perfectly placed for growth and these new premises will allow us to accommodate a larger team.
“Our employees are our number one asset and Kings Hill offers them a pleasant work environment, good local amenities and excellent transport links.”
Caroline Binns of Kings Hill developer Liberty Property Trust added: “We are delighted to welcome Magrock to Kings Hill and have them join the flourishing community of businesses that are based here. Our range of flexible office spaces can accommodate small and medium-sized enterprises, as well as larger corporates.”
Work completes on £20m Tonbridge commercial development
A joint venture between developer Chancerygate and international real estate firm Hines has achieved practical completion on its £20 million 100,000 sq ft Tonbridge Trade Park scheme.
Situated on Vale Road, the scheme comprises 15 high-specification Grade A units. Four of the properties, which total 31,750 sq ft, have been pre-let ahead of practical completion.
A further unit totalling 5,000 sq ft is currently under offer, which means more than 36% of space at the development is now let or under offer. The 10 remaining units total 63,250 sq ft and are available on a leasehold basis.
Located a mile from Tonbridge town centre, the scheme provides easy access to transport links including the A21 and A26, as well as to the M25.
Chancerygate development director Jonathan Lee said: “Tonbridge Trade Park is the first new build, Grade A multi-unit trade park and urban logistics development in the area for more than 20 years. The scheme will help meet the significant demand for much-needed high-specification, sustainable commercial accommodation in Tonbridge and surrounding areas.
“With its strategic location, the scheme is best placed to serve businesses across Tonbridge and the wider region. This is evidenced by the pre-lets we have already seen, and we anticipate this interest will only grow now practical completion has been achieved.”
Sussex office opening marks expansion milestone
Three Sixty Design Solutions, a multi-disciplinary firm that delivers survey, design and build solutions nationwide, has opened major new offices in West Sussex.
As part of bold business growth plans, Three Sixty Design Solutions has thrown open the doors at Hills Barn in Chichester.
Bucking the trend of businesses closing premises and switching completely to remote working, the new Chichester operation will complement the company’s existing office, located close to London Bridge.
Managing director Gareth Pryce, who leads the business with directors Simon Avery and Harvey Ford, said: “These are exciting times for Three Sixty Design Solutions. The opening of our new office is a major milestone in our strategic growth plans for the future of the business and the delivery of design excellence.
“Its modern, light and attractive suites are the perfect environment for our team of experienced professionals to provide high-quality solutions and services, and drive the business forward.
“We see investment in the new offices as a vote of the confidence in our people and business, the sectors we serve and west Sussex as a prime location from which to support clients.
“We are an agile business that incorporates modern working methods, but at the same time we believe there is no substitute for employees being together in an office to collaborate, inspire one another and create a terrific team spirit to breed a culture of success.”
Hendy has plans for John Lewis site in Tunbridge Wells
Hendy Group, the family-run motor dealership, has unveiled plans to transform its Tunbridge Wells operations by acquiring and redeveloping the vacant John Lewis Partnership site on the outskirts of the west Kent town.
Hendy’s plans would see it relocate its sales, parts and servicing departments from its dealership on Mt Ephraim to the 1-hectare (2.4-acre) site in Kingstanding Business Park. The former John Lewis at Home store closed in April 2021.
The proposed multi-million-pound investment has seen award-winning Hendy Group submit a planning application for a modern five-brand car showroom and workshops, improving the customer experience whether buying a car or having it serviced.
The new operation would also create a much better working environment for Hendy’s staff and help the company retain and expand its 150-strong workforce.
If the application is approved, construction work would start on site as soon as possible with the aim of it welcoming its first customers by early 2024 at the latest.
