Office Occupancy Rates Plateau

A normal ‘Post-Covid’ workday in many offices, but for how much longer?

If the news about vacancy risk doubling wasn't bad enough for landlords, the office occupancy figures for the UK are equally troubling as they are still failing to get above an average of 30% compared to a pre-pandemic figure of 80%, according to the latest data from Remit Consulting (see above).

Hopefully things will improve after the summer but with COVID cases edging up, industrial action still threatening to disrupt major infrastructure, who knows.

I wonder where Rishi and Liz stand on the return to the office? In my view, the UK’s next Prime Minister would do well to encourage the civil service and big corporates to get staff back into the office otherwise the economy could suffer an even longer and deeper recession as productivity declines and our youngest and brightest talent miss out on vital interactions that only the office can provide.  

If you would like advice on your office lease and what your options might be in terms of disposal and/or relocation, please call Martyn Markland on 0161 457 1422 or email him at mm@tenantag.co.uk

Growing Logistics business lands new unit, just in time!

External elevation AFTER refurbishment

Warehouse interior BEFORE refurbishment

Warehouse interior AFTER refurbishment

Office accommodation AFTER refurbishment.

Solicitors may be experts in the drafting of legal contracts, but they tend not be experts in the construction and pricing of buildings. That is why they often advise their clients to speak with a qualified surveyor such as ourselves before they acquire new premises.

Take the recent case of a rapidly expanding logistics company. This relatively new business specialises in temperature-controlled transportation for pharmaceutical companies. Unsurprisingly, its’ order book had grown significantly during the pandemic. So much so that it needed more space. After undertaking its own search it had managed to negotiate lease terms on an industrial unit owned by a well respected landlord.

The property in question had been left in a poor state by the previous tenant. The landlord planned to carry out a refurbishment and had offered what at face value appeared to be reasonable terms. However, the tenant’s lawyer was not so sure and asked TAG to carry out a review before any further commitment was made.

Having inspected the premises and reviewed the terms, we identified several issues which in our view posed unnecessary financial risks for the tenant. These risks represented tens of thousands of pounds worth of potential liability.

We made our recommendations and were then instructed to re-negotiate the terms in order to minimise these risks.

Here are a few examples of the types of protection we secured. Hopefully this helps to explain the value in taking professional property advice.

1. Break Option

   The original terms were based on a five-year term. We were concerned that as a rapidly growing business, the tenant might outgrow the premises before the lease expiry date. The client felt the same but had been told that neither a shorter term nor a break option were available. Despite this, we managed to negotiate a Tenant only break option at the end of the third year. This will help the tenant to avoid an expensive double overhead if it needs to lease larger premises within the next 5 years.

2. Break Option Conditions

   The operation of a break option is a technical and thus, risky process. It is therefore important to ensure that the conditions attached to the break option are kept to an absolute minimum otherwise there is a risk that the option could be invalidated on a technicality. After some initial resistance from the landlord, we managed to secure minimal conditionality for the tenant.

3. Security of Tenure

   The original terms offered by the landlord stipulated that the lease would be excluded from the security of tenure provisions of the 1954 Landlord & Tenant Act. This ‘contracting out’ as it is termed, would have removed the tenant’s statutory right to renew the lease at the end of the fifth year.

   We therefore went back to the landlord and through negotiation, managed to reverse its decision.

   This means the tenant will now be able to renew its lease at the end of Year 5 should it wish to do so, subject to certain conditions laid out in the Act.

   The provisions of the Act also ensure that there is a mechanism by which the terms of the new lease (including the new rent and the new lease term) will be agreed.

4. Repairing Obligations

   The original draft of the lease obligated the tenant to replace old for new throughout the Premises. The definition of ‘Premises' included the roof which meant that the Tenant would have to replace it if it failed during the lease term. This was far too onerous an obligation in our opinion given that the building was undergoing a relatively light refurbishment which involved for example, repairs to rather than replacement of the roof.

   We therefore re-negotiated the repairing obligations so that the tenant’s liabilities were instead limited to the physical condition of the ‘Premises’ at the start of the lease. This significantly de-risks the tenant’s liabilities.

   In order to evidence the physical condition of the Premises at the start of the lease, an annotated Photographic Schedule of Condition report was prepared by TAG’s building surveyor shortly before the property was handed over. This report is now attached to the lease. This will provide a starting point for any future discussions relating to repair or re-instatement.

5. Legal Costs

   The original terms stated that the landlord would be able to recover its legal costs if the transaction was aborted for any reason by the prospective tenant. However, it made no mention of the quantum of such costs or whether the tenant would be entitled to recover its costs if the landlord withdrew from the transaction. This seemed illogical to us.

   We therefore managed to secure parity in relation to abortive legal costs. We also made the calculation of such costs subject to a test of reasonableness.

If you would like to learn more about our transaction due diligence services, please call Martyn Markland on 0161 457 1422 or email him at mm@tenantag.co.uk

Manchester’s Office Rents set to break £45 per sq.ft.

We understand that Manchester’s highest ever office rent is about to be set at £45 per square foot making the city the most expensive city centre location outside central London.

The previous record rent for Manchester’s office market was set in January 2021 when Grant Thornton signed a lease on 13,000 square feet at Landmark at a headline rent of £38.50 per square foot.

But that record is about to be surpassed by a letting of a 1,862 square foot penthouse suite at Chancery Place on Brown Street in the heart of the city’s traditional business district. The new rent is 17% higher than the previous record.

The suite (pictured above) was originally planned to be a communal business lounge with shared meeting rooms and a large roof terrace. However, due to exceptionally keen tenant interest, the landlord has apparently decided instead to let the space. It is understood to be under offer at a headline rent of £45.00 per square foot, which would make it Manchester’s most expensive office space by some margin.

The suite will include around one third of the roof terrace with the remainder still being dedicated to communal use.

This letting may not yet be totally representative of the local market as awhole due to its relatively small size and unique characteristics (i.e. that amazing view). However, it does prove that some tenants are willing to pay a substantial premium for space that has a “wow” factor.

Worryingly for tenants though is the risk that such a deal could cause a ripple effect by raising the rental aspirations of other landlords in the city centre market. With cost inflation already at record levels, this is not what businesses need right now.

Of course, hybrid working means companies can reduce their office footprint. This is resulting in tenants seeking smaller but higher quality space. This in turn is creating a two-tier market where record rents are being achieved in the best quality new buildings in spite of overall office supply going up.

On the flipside, we are seeing an increasing number of larger floorplates coming to the market. These are often still leased to the original corporate tenant. This 'Tenant Space' as we refer to it, is ideal if you want to minimise your upfront capex on fit-out and your on-going fixed costs. In many cases, the rent will have been set several years ago which means it could now be well below the current market level. Also, the quality of the fit-outs in these suites is usually pretty high so the cost of relocation can sometimes be significantly lower than you might expect.

If you would like to learn more about ‘Tenant Space’ or offices that have that ‘wow factor’, please call Martyn Markland on 0161 457 1422 or email him at mm@tenantag.co.uk

A swimming time?

Are communal swimming pools on top of office buildings a good idea or just plain mad?

As UK landlords attempt to maximise the ESG (Environmental, Social and Governance) and Wellness credentials of their office buildings, several are apparently thinking of installing infinity pools on the rooftops of their next developments. Some of these are planned for Manchester, of all places. I know, it is hard to believe.

But is this sensible? Would your staff feel comfortable walking around the pool at lunchtime in their swim gear whilst colleagues and bosses look on? Maybe there isn't an issue here and my concerns are totally unfounded.

What do you think?

If you would like to know which new office developments in Manchester achieve the highest ESG and Wellness scores, please call Martyn Markland on 0161 457 1422 or email him at mm@tenantag.co.uk