The concept of the office has seen something of an evolution in recent years. A pandemic experience, technological disruption, a focus on sustainable practice, shifting values of a new generation of workforce, and a greater understanding of staff wellbeing have all served to reshape our understanding of the ‘office’, and, in turn, investor attitudes towards commercial real estate as an investment. As part of our ‘Real Estate from a New Perspective’ series, Martin Hubert, Managing Director of Suntera Global’s Luxembourg office, explores how new ways of working are shaping the commercial real estate space…
Q. How have remote and hybrid work models impacted demand for office space, and what trends are you seeing among investors in that context?
MH: Since the Covid pandemic crisis, the rise of remote and hybrid working models have materially impacted the demand for office space in Europe. Consequently, we have seen a noticeable decrease in the demand for traditional office space. Instead, companies are opting for more flexible office solutions that can better meet the requirements of a co-working, hybrid approach.
In addition, where pre-pandemic prime office space locations generally focussed on the main city centres, today we are seeing a trend towards basing operations in the suburbs or even in rural areas.
And, when it comes to investors, we are seeing the direction of travel move towards opportunities encompassing greener credentials - for instance those that provide green spaces, wellness amenities and social spaces that encourage positive interactions between colleagues. Technological capabilities too are a significant consideration with both businesses and investors alike factoring how tech-equipped a space is into their decisions.
Q. Given the rise of flexible office spaces and coworking environments, how do you see the UK and European traditional office market evolving over the next few years?
MH: The demand for traditional office space will continue to decline, replaced by spaces that better fit a co-working environment and offer greater flexibility. As a result, companies will look for smaller offices while simultaneously encouraging their staff to work from home or from satellite locations outside of the main city centres.
This will likely prompt a change in leasing options leading to more flexible terms such as shorter leases, shared offices, incentives based on well-being amenities and ad hoc office services.
Meanwhile, landlords will have to remain cognisant of greater ESG and technology demands if they are to remain competitive and in demand.
Q. What role does technology and sustainability play in shaping the future investment trends in office and commercial space?
MH: The twin agitators of technology and sustainability are and will continue to be key driving forces for both businesses and real estate investors.
ESG considerations are likely to play a sizeable part in deliberations over whether to occupy or invest in a particular office space. In addition, governments and local authorities mindful of their own sustainability goals and obligations will likely offer advantages such as grants and tax incentives, to encourage investors, companies and landlords to prioritise environmentally green credentials, for instance, ESG building certification.
In tandem, technology and its innovative application, such as when it comes to smart devices and processes, will be crucial to the desirability of office spaces. Expectations around internet speed, for instance, are now a given but technology innovations focussed on communications, data, building management and energy efficiency going forward will be viewed as essentials to both businesses and investors alike.
Q. What about the location of new office developments?
MH: We have already seen a trend of offices relocating to the outskirts of main cities, but we are also seeing an increase in businesses opting for smaller, central spaces supported by satellite offices in suburban or rural places. Consequently, demand for those suburban and rural office spaces has risen not least of all due to the lower rental costs, larger proportions and greater access flexibility they offer. Notably, in a European context, these suburban developments often sit close to country borders providing greater employment opportunities for the large community of cross-border commuters.
As a result, the coming years will likely see businesses opting for a mix of urban and suburban office spaces with larger organisations specifically looking to accommodate employees’ working preferences and add to their own appeal as an employer.
Q. How is the flexibility of the commercial and office space impacting structuring?
MH: The flexibility of commercial and office spaces is transforming every aspect of how these buildings are used and how investments into such properties are structured, prompting a chain of knock-on effects – and service providers like Suntera can provide access to the specialist reporting, structuring, governance and administration requirements needed in this light.
For more information about this topic, please get in touch with Michael using the details below.
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Key Contact:
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Martin Hubert
MANAGING DIRECTOR, LUXEMBOURG
