"Technology can boost the competitiveness of a property amid a testing market and offers strong grounds for charging tenants premium rental rates that naturally boost revenue. Furthermore, infrastructure upgrades are highly likely to translate into increased property valuations"
- Wybo Wijnbergen - infinitSpace
In recent years the office real estate market has been rocked by a multitude of external influences, including evolving work patterns, shifting business workspace needs, soaring inflation rates, and interest rate spikes. Naturally, such transformation with little time for adjustment has left many landlords reeling.
To put this into perspective, recent data from BNP Paribas reveals that average London office values have seen a sharp 17% decline since the summer of 2022 as they experienced a downward trajectory over the past five consecutive quarters. In part to blame for this are large interest rate hikes, which have led to increased – and highly burdensome – debt repayments.
Another pivotal concern is low occupancy; once unwaveringly steadfast, revenue streams are now hampered by rising vacancy rates in traditional office spaces. Conversely, the changing office requirements of businesses, as they embrace hybrid working and avoid lengthy leases amid economic uncertainty, drive demand for flexible workspaces.
In spite of these formidable obstacles, hope is in no way lost; the potential to enhance revenues and property values remains viable. But ultimately, success lies in whether landlords proactively engage with their tenants, both current and prospective, to discern the necessary actions.
Taking action to grow revenues and valuations
For office landlords, ensuring that their offerings address market demands effectively can be achieved in a variety of ways.
One lucrative realm for landlords to consider is mixed-use developments. The new Republica development in Amsterdam serves as a compelling example. Taking its inspiration from the ground-breaking '15-minute city’ concept in urban planning, this development encompasses a variety of retail, residential, and recreational spaces, alongside three flexible workspaces that will be managed by infinitSpace.
Developments like this have the potential to become the heart of a community, with diverse facilities that enrich the tenant experience and create the opportunity for landlords to build a multitude of different revenue streams. Top-class facilities also have the potential to skyrocket the desirability of an area, thereby positively influencing property values.
Another crucial area for development involves the integration of innovative tech into office spaces. Substantial demand exists for tech solutions that enhance the tenant experience, such as high-speed internet and community management apps that foster connectivity and collaboration.
Technology can boost the competitiveness of a property amid a testing market and offers strong grounds for charging tenants premium rental rates that naturally boost revenue. Furthermore, infrastructure upgrades are highly likely to translate into increased property valuations.
Thirdly, introducing elements of flexible workspace into a landlord's property portfolio can yield substantial benefits in terms of revenue and valuation enhancement. The surging demand has created numerous opportunities for landlords to capitalise on by repurposing existing office and commercial spaces into flexible workspaces.
Improving existing properties through redevelopment and diversifying commercial buildings in this manner is a powerful approach to fortifying revenue. Not only do revenue streams become more resilient, but risk is also mitigated as rent is spread across several smaller businesses rather than a few larger ones.
Indeed, the adaptability of flexible space makes it an appealing proposition for lone entrepreneurs, SMEs, and large businesses alike, opening new markets of prospective tenants for landlords.
The time and financial investments required to transition to a workspace model may initially raise concerns for landlords, but this shift can be managed seamlessly by partnering with flexible workspace providers. These providers can oversee all stages of the project, from conceptualisation and development to efficient, cost-effective operation.
Opportunities to thrive in the office real estate sector remain abundant – it is simply a case of knowing where to look and how to take action. Landlords must thoughtfully consider how to best respond to market demands, from integrating modern tech solutions into office infrastructure to diversifying revenue streams with flexible workspaces or mixed-use developments.
Regardless of the avenues landlords choose to explore, remaining proactive and reflective will be key.
As Charles Darwin observed: “The most adaptable will survive.”
