EDITOR’S COMMENT I wrote a silly LinkedIn post this week about how I accidentally set alight a pair of oven gloves that I was wearing when reheating some leftovers for lunch while working from home during the train strikes. My joke was that WFH was clearly dangerous and if I, as an employee, can’t be trusted not to set a limb on fire or burn my kitchen down, then it’s irresponsible for it to be allowed. After all, that accident wouldn’t have happened if I had been in the office and supporting the central London economy by buying my lunch.
It was hyperbole, in case that needed clarifying. Not the oven gloves catching fire – that really happened. But I don’t honestly believe working from home is a bad thing on the whole, least of all for safety reasons. That said, I’ve long argued that teams and colleagues are better in the same room, shouting across desks and talking, arguing, working (and eating) together, especially in an industry like journalism. So I was always going to be eager to hear what the C-suite bosses at the big agencies said about the outlook for office leasing in their latest results.
We have now had Q1 figures from CBRE, Colliers, Cushman & Wakefield and JLL, and all highlighted year-on-year improvements in their leasing revenue. At CBRE, chief executive Bob Sulentic singled out companies’ progress in encouraging workers back to the office as a driver of deals in that part of the business.
As ever, the earnings calls gave even more colour to an issue that has never been black and white.
“We don’t have a single client that I’m aware of – and we work with the biggest tech companies, the biggest financial companies, etc – that doesn’t view their office space as a critical asset for the operations of their business,” said Sulentic. “They’re all trying to get their people together more. They’re all trying to get people to spend more time in the office and less time at home. And they’re very focused on using those office portfolios to get that done. Yes, most of them are trying to figure out if they can operate with less office space. But to get from more to less office space, they’re also thinking about reconfiguring their offices and upgrading their offices and taking different office space. That’s why you saw leasing go up.”
But not all businesses are scaling back, the CBRE chief added. Financial institutions and business services companies are taking more space, he said, even if tech take-up is “way down”. And even that situation will turn around, he predicted. “There is nobody that pays attention to tech that thinks [in the] long run they won’t a) get more of their people back in the office, and b) grow, and be disproportionate growers relative to the rest of the economy”.
JLL chief financial officer Karen Brennan said new tenant office requirements rose in the first quarter, coming within 30% of pre-pandemic levels in the US. “Importantly,” she added, “the sublease vacancy rate is continuing to fall”.
“We’re continuing to see incremental signs of improvement in office broadly,” Brennan said. “That’s generally being led by the highest-quality, best space available. And you’re seeing rents continuing to increase in that space. One other thing we closely monitor is the activity around large lease deals, which we categorise as those deals over 100,000 sq ft in the US. And those are returning to the market as well.”
A few more good news stories for the office market before I get back to reading oven glove reviews on Amazon. In Farringdon, a surge of new occupiers after the opening of the Elizabeth Line has taken rents higher in each successive quarter since the second quarter of 2022. Grade-A rents are now up by 44% on their level five years ago, with only Mayfair posting faster growth. And in the capital’s Tech Belt – spanning Whitechapel, Shoreditch, Clerkenwell, King’s Cross and St Pancras – take-up in the first quarter was the best since the third quarter of 2019 and more than two-thirds above the 10-year average.
And for an operator’s view on what the future of the office looks like, turn to this week’s big interview with Jamie Hodari and Tom Redmayne of flex group Industrious. Founder Hodari is frank about the pressure that mounts in a business in which customers can walk when the want to. “For better or worse, our business lives or dies day after day on whether people actually want what we’re offering and continue to want what we’re offering,” he said. “People can vote with their feet and if we’re doing a crappy job of it, they’re going to move to a competitor space.”
Or work from home. Maybe just order in a takeaway if you do though. No sense in taking unnecessary risk.
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