July 7

Reviving London’s Commercial Landlord Revenues: Creative Solutions Needed


The rising popularity of serviced apartments attracts guests seeking hotel-like comforts while maintaining their privacy. To stand out among the competition and increase profitability, it’s crucial to enhance your marketing strategies for your multiple properties in town.

The commercial property sector finds itself at a critical juncture. The predicted decline in office values, anticipated by the end of 2022, has become a reality, resulting in substantial financial losses. Notably, British Land recently reported a significant pre-tax loss of £1 billion.

With inflation on the rise and companies tightening their budgets, prominent entities like Meta and John Lewis have chosen to abandon their office spaces. However, not all are eager to follow suit, as exemplified by public statements from JPMorgan Chase and Amazon advocating for a widespread return to offices.

Contrary to optimistic projections, the demand for office leases has not fully recovered to pre-pandemic levels. Landlords can no longer ignore the situation and must embrace adaptability, mirroring the flexibility exhibited by the companies they cater to. Moreover, they must acknowledge that their competition extends beyond fellow landlords and now includes various digital workplace solutions.

Commercial Landlord

While there is significant resistance to suggestions of a complete return to office work, as evidenced by the backlash against proposals like Jeremy Hunt’s call for a “default” office setting, it is worth noting that less than a third of workers prefer full-time remote work. Moreover, 72% of leaders still view the office as an essential hub.

The demand for office space remains strong, yet the number of vacant offices has surged by 65% over the past three years. The challenge faced by commercial landlords is not a lack of demand or supply, but rather the transformation in the nature of this demand. The current office offerings are no longer suitable.

The requirements and practices of the UK workforce have undergone significant changes since the pandemic, but office leasing has remained rooted in outdated approaches. The majority of available office spaces are designed for long-term leaseholds, inflexible arrangements, and rigid purposes, failing to cater to the diverse needs of our post-pandemic work environment.

Companies now embrace a wide range of working practices, encompassing hybrid models such as “fixed,” “remote,” and “flexible” work setups, with countless variations. Some employees utilize the office for just one day a week, while others frequent it for four days, and some enjoy the freedom to come and go as they please. The one-size-fits-all approach no longer applies. The traditional five-day fixed office lease cannot accommodate this new demand for flexibility and diversity.

The very essence of the office has undergone an irreversible transformation. Businesses no longer view it as a necessity for their operations. For an office to be deemed worthwhile, it must generate productivity gains that outweigh its costs. These gains manifest in improved staff attraction and retention, enhanced collaboration, and a stronger sense of belonging and purpose. Modern businesses seek these advantages from an office space that promotes productivity while also reducing expenses.

Businesses are taking decisive action. In their quest for cost reduction amidst the escalating cost of living, they are cutting wasteful expenditures on empty office days, which can amount to £190,000 annually. Moreover, they are abandoning office leases that fail to cater to their needs and exploring alternative options where they only pay for the days they require.

Fortunately, a few proactive landlords have taken the lead by adapting the setup and availability of their office spaces. They offer part-time contracts or facilitate hybrid office sharing, enabling multiple companies to utilize the same space on different days. This flexible approach unlocks a more reliable and adaptable revenue stream, aligning with the evolving needs of businesses.

Forward-thinking individuals embracing this progressive approach are also creating intuitively designed spaces that can adjust to accommodate a broader and more diverse range of workplace activities. The office is no longer confined to mere desks and boardrooms; it must now offer an enticing environment worth leaving home for.

As this paradigm shift in office leasing gains momentum, those who resist flexibility and adaptation will inevitably fall behind. At Space32, we have witnessed a substantial increase in the demand for more flexible office leasing options, with two-thirds of businesses actively seeking alternatives to full-time contracts.

To fill vacant office spaces and revive declining revenues, relying solely on securing contracts with full-time occupants who pay for a five-day lease and conform their working schedules accordingly is no longer viable. Instead, landlords must recalibrate their assets to align with the realities of the hybrid working era.

This necessitates a reimagining of how spaces are provided and the types of contracts offered, allowing for flexibility in their usage and rental terms. It is crucial to empower companies to lease office space according to their own requirements, offering contracts that accommodate the diverse range of practices they pursue. For instance, enabling tenants to sublet their spaces to other businesses.

Commercial property leasing stands at a critical juncture, presenting landlords with an opportunity to shape its future in a positive manner. The key to securing dependable revenue lies in meeting the evolved needs of companies seeking office spaces. Adaptation is the only viable option to achieve this goal.

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British Land pre-tax loss, Landlord revenues, London commercial property, Office value decline

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