WHAT'S wrong with a pre-loved office? The property market is obsessed with bright, shiny new developments, but why bother when the Midlands has a huge amount of quality used office space on offer? Craig Straw explores the topic of refurbished offices.
If you look at activity in the Nottingham office market over the last year, what it shows is that the market isn’t saturated with grade A transactions, but that it is actually grade B take-up accounting for most transactions.
Recent research demonstrates that whilst the supply of offices went up in 2011, the actual supply of grade A and B stock remained constant at around 350,000 sq ft. The increase was actually accounted for by grade C stock, which saw a 60% increase.
Whilst on the supply side it was grade C stock which accounted for the increase, transactionally activity was concentrated in grade A and B and in fact the number of transactions of good quality accommodation in the city centre and fringe doubled in 2011 when compared to 2010.
Over the last few years there has been no speculative new construction, which means there has been a lack of supply of new grade A stock so what we have experienced in recent years is a gradual up-take in grade A stock which when combined with no new supply coming into the market means that supply overall has been dwindling. For example in 2010 there was a 100,000 sq ft reduction in available grade A space in Nottingham as demand outstripped supply.
There is not so much an obsession with grade A stock, people just want good quality stock in good locations. The rents and deals currently taking place depend on individual circumstances of the property and the landlord/tenant. This could include issues such as - is the tenant under pressure to move quickly? When is their existing lease is due to expire? Is the additional space required to accommodate a new contract etc., it really depends on what is driving them. On the landlord side – empty rates liability is a significant factor, and some landlord’s will be better funded than others. The deals happening can vary significantly because of these factors, so it’s difficult to point to values.
There are a lot of things people should be looking for when moving in to established office space but in my view occupiers should be mindful of the overall occupancy cost. You don’t just need to judge a property by its headline rent you should ensure that you take in to account its service charge and what this incorporates. For example - does it include utilities? Does it include 24 hour security (which can incur a great cost), and do you require all the services this service charge incorporates?
You should also ask yourself how efficient is the accommodation for your needs? For example, does it have raised floors, is it open plan – does it enable your workforce to interact well with each other etc.
Increasingly occupiers also need to consider the running cost of and anticipated lifecycle of the mechanical and electrical plant even on relatively modern buildings. There are examples in the market place at the minute of buildings available at cheap rents, but the running costs are high and the plant could soon need to be replaced, which can come at a high cost.