A new occupancy model for offices: could this be the solution for building owners facing covid-fuelled office vacancies? - Boodle Hatfield

Your lawyers since 1722

02 Jun 2021

A new occupancy model for offices: could this be the solution for building owners facing covid-fuelled office vacancies?

Written by

3 min read

This week we have learned that 20,000 people from Natwest's workforce will, instead of being based full-time in the office, be required only to attend the office for two days in any given month. Whilst this is reported not to result in any immediate office closures, the news must be a source of concern for Natwest's landlords, particularly in respect of buildings where Natwest have an upcoming break date or their existing lease is shortly due to expire. 

Natwest is one organisation, but there are many others evaluating their office space requirements in the wake of the biggest global home working experiment ever trialled. The consensus currently seems to be that the office will still be important to an organisation's workforce, but perhaps not five days a week. Ultimately, if a degree of weekly home working becomes the norm, organisations will look to reduce their office footprint. 

So, how can building owners get ahead of the curve? One solution may lie with new age serviced office providers. Building owners can enter into a management agreement with a new age serviced office provider, pursuant to which the serviced office provider agrees to manage the building under their serviced office brand in exchange for a fee. The serviced office provider fits out the building in line with their brand; sources occupiers for the building; manages them whilst they are in the building; collects fees from the occupiers; and sources the services for the building. The fees are passed back up to the building owner, with the serviced office provider's cost deducted. 

The key advantage of this arrangement for a building owner is that they diversify their income stream. Rather than just one occupier; they could have hundreds. As such, any one occupier leaving, is no longer a big deal for the building owner. This arrangement enables the building owner to give occupiers what they are looking for: flexible office space to meet the changing demands of their workforce. This is essential for organisations grappling with the idea that the office is for some employees perceived as "a benefit" where they can have a change of scene from their home environment and for others only necessary for the purposes of collaborating with their colleagues. 

Serviced offices are clearly here to stay. The new aged hotel-style management contract between serviced office providers and building owners will become increasingly more prevalent in the sector. It will not be for all building owners, for example, building owners who have highly leveraged buildings or who are concerned with maintaining an institutional-grade investment, are unlikely to be the early adopters of this arrangement. But, those building owners willing to move away from the traditional landlord-tenant relationship, could see a silver-lining from re-purposing their covid-induced vacant office space and adopting this new aged serviced office model.

One in three of the bank’s staff – more than 20,000 workers – will be able to live and work anywhere in the UK and have to attend their office in person only two days a month.

Written by