a German perspective
"In view of the uncertainties that still exist, it is important for companies to be able to react flexibly to the unforeseen. In order for an office to be set up flexibly in every respect, a sustainable base should already be laid in the planning phase when new leases are signed or contracts are renewed."
Bastian Jourdan
Head of Office Leasing, Frankfurt
Avison Young Germany
An attractive office was something different before Covid-19 than it is today. The flexibilisation that office workers have experienced in recent months will continue to be in requested.
The demands on offices are changing as a result, flexibility is also moving into focus here and, for example, representation functions are moving to the side. Owners who pre-equip their properties with technology will have an advantage in the leasing process. This includes, for example, the installation of flexible partition wall elements that can be quickly adapted to different forms of work (activity-based working but also individual rooming), or a ubiquitous installation of floor tanks as well as the increase of TGA capacities to be able to react in individual cases for sufficient ventilation due to additional occupancy in smaller areas. Such conversion measures should be able to be carried out ideally within a weekend.
The majority of office buildings in German office cities do not yet offer these prerequisites. Some owners even face special challenges: technical factors that had little relevance a few months ago take on new significance due to a pandemic in the background. For example, the question of fresh air supply. In Frankfurt, there are high-rise buildings with windows that cannot be opened. Air systems only circulate the air every two hours. It is becoming more difficult to re-let such properties.
Flexibility in demand from landlords
It is not only the buildings that need to undergo a metamorphosis to meet the new demands, but also the owners/investors need to alter their mindset. The last few years we have seen high take-up figures, now landlords need to adapt to reduced demand and be ready to engage in flexible solutions. This can include incentives but also the length/term of leases.
Companies will address space saving potentials when renegotiating contracts, to what extent can only be roughly predicted at present. Expensive city offices will presumably shrink across all sectors.
Increasing hub functions of offices are possible - and large companies have already established this. For medium-sized and small companies, coworking offers in the suburbs are more appropriate in order to be able to govern flexibly. The possibilities of working close to home also arise from another perspective. In residential planning, general office use is planned in the unattractive ground floor locations or unlettable retail spaces are converted.
While the latter example is positive for the soft factors of a residential investment and can also ensure occupancy of all space, pure coworking properties are only of limited interest for the office investment sector. Here, too, the focus remains on core. This is reflected in the falling yields in the top locations.
As far as investment decisions are concerned, Covid-19 has further increased the demand for post-occupancy concepts. Collaboration with leasing teams is becoming more intense. Overall, the investment case is changing: it is no longer the contract that is important, but factors such as accessibility or compliance with ESG criteria in addition to after-use opportunities.
In both leasing and investment, the need for advice is increasing due to the current uncertainties but also the current upheavals in workplace use.
