How flexible working could affect commercial property

The rise of flexible working and the phenomenon of renting desks rather than whole spaces is changing the way commercial property is managed.

It’s likely that an increasing number of large commercial spaces will be altered and converted into smaller units. These would be designed specifically to attract smaller tenants, including sole traders, start-ups and SMEs.

Predictions for next year

In 2018, I think it’s likely that we will see modest rental growth as well as some capital growth across the commercial property sector. However, there will be regional differences depending on the specific dynamic of each local market.

While Brexit is far from concluded, the negotiations do create a level of uncertainty across the wider business community, and is consequently affecting choices for tenants. SMEs and smaller businesses are extremely unlikely to relocate abroad following the UK’s withdrawal from the EU.

This means it’s likely that larger commercial spaces will be reused as areas to attract smaller tenants. Rather than relying solely on one massive tenant, commercial property investors are likely to see changes in the serviced office market.

Taking advantage of trends

Commercial investors should embrace these changes and take advantage of the differing ways small businesses and SMEs are choosing to work. The business climate is changing in many ways, with the increasing reliance on technology, remote working and collaborative thinking.

There are various business models that traditional commercial property investors could consider, from shortening the traditionally long leases or granting 12-month licences. Or, they could look at the more ‘hands on’ approach of desk rental by the hour, week or month.

How will this impact the lenders?

As these changes alter the way offices are managed and rented out, there is also a likely impact on commercial lenders. While many are accustomed to, and comfortable with the traditional model of commercial investment with longer leases, it’s likely that smaller disruptive challenger banks will also move into this part of the market.

It’s basically a different kind of business model for commercial property investors, and will require some flexibility of thought and willingness to alter traditional ways of working.

Higher turnover of tenants

As the business model moves away from the older style long term leases to large, international businesses, it could be looked at as more like trading business. There will be a higher turnover of businesses and individuals looking to rent space, leading to a more continuous market. Tenants, whether SMEs or sole traders, will likely have shorter average stays, necessitating commercial property management companies and investors to always be on alert for new tenants.

Creating communal spaces

As well as utilising large commercial office spaces in new ways, investors may choose to create entirely new ways of working communally. This could include renting out cafes, restaurants or meeting rooms, which would all require more day-to-day management and hands on staff.

With the advent of Proptech and Fintech altering the way we all work, how money is lent out, how deals are done and transactions completed, it’s not surprising that the physical form of office space is also changing.

– Richard Carr

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