EDITOR’S COMMENT Has Brexit blown it for speculative development? And does that really matter? Those were the two questions running through my head this week as exclusive figures from Cushman & Wakefield revealed that the majority of the 2.1m sq ft of speculative office development across the UK’s big six regional cities had been put on hold.
Reasons for pausing on construction were put down to rising build costs, inflation and the increasing cost of debt. Indeed, in an insightful interview with a trio of lenders this week, we learn of a new dawn for debt, particularly development finance. Not only is the cost of debt more expensive, but some lenders out there just won’t lend. They won’t lend without planning consent and some are saying that offices just aren’t for them anymore.
A lack of supply isn’t all bad, of course. We will tend to pay more for something that is hard to get hold of. Or at least we used to. In those pre-pandemic days when we absolutely had to work in an office for the majority of the working week, a lack of supply would most definitely lead to rental increases across all stock. Now, when one in six of us is working from home all the time and around a quarter of us are working a hybrid week, the need is less and I don’t need to tell any of you about the flight to quality.
Let’s take the WhatsApp that pinged into me from my bestie while writing this as an example. She’s trying to get hold of some Madonna tickets, but they are VERY hard to find. Unless you want to pay about £300. As a long-time fan, I considered it, for about a second. Then I remembered that the Madonna I used to love isn’t the same Madonna today. I haven’t actually listened to Madonna in a long time. In the hope that Her Madgesty doesn’t read the EG, I’d say she’s now very much akin to a grade-B or C office for me, rather than the grade-A office I would pay that £300 for. So I’ll pass.
Charles Dady, national head of office leasing at Cushman, says it more appropriately for this audience than me. He says the lack of grade-A space and an absence of speculative development is encouraging occupiers to secure the best space while it is available, but the pressure they face on controlling or reducing their cost bases is pushing back in the opposite direction.
It’s a bit of a conundrum for the development community. Every developer out there knows that if you want an occupier to take your space, it has to be the very best space today. Green credentials, tech-enabled, more wellness amenities than a spa. It has to be better than what home has to deliver.
But if occupiers are still battling with flexible and hybrid working and are cutting costs, if the sector that for years has been bolstering take-up numbers is now culling its workforce by the tens of thousands, if lenders are telling you that you can’t have any money speculatively, if labour and materials costs have skyrocketed, and if none of us really know what’s going on with our government and economy, then of course you just stop. For now at least.
I know that doing nothing is sometimes terminal for real estate, so I see that no speculative development could really be a bad thing.
But then something else pops into my head. Do we really need more space? Yes, we need more fit-for-purpose space, but do we actually need more speculatively built development? Should we be purposely refurbishing, retrofitting and rebuilding for a community need? The lefty in me knows the answer to that. But I don’t know if it is the right one. Answers on an e-mail, please.
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