The whole ‘death of the office’ shtick has been subject to many articles over the last six months, but this is not one of them. It is, however, about how offices remain an investable asset, how the perception of offices is changing and why family offices should be looking to acquire them sooner rather than later.
Currently, there is a unique window of opportunity, particularly in the regions, as a large chunk of the institutional and fund investor population is currently sitting on the side-lines.
What do the stats say?
Investor sentiment has been gradually improving throughout the pandemic, with Q4 2020 volumes increasing by 53% on Q3. In 2021, the first quarter was unsurprisingly a little more subdued as the entire quarter was in lockdown. However, interestingly, during this time investment in the south-west was above average and Bristol’s largest ever office investment traded at £140 million ($195 million), with the sharpest yield (3.7%) and strongest headline rent (£40/$56 per sq ft) that the market has ever seen. It was a hint that, despite the nay-sayer narrative about the office, the Bristol market is alive and kicking.
A helpful backdrop, but why should family offices act now?
Put simply, the larger institutional funds are concentrating almost exclusively on assets with long income, single let defensive stock and logistics and the ‘life sciences’ sectors (my first boss had a tie decorated with sheep, which he gleefully called his ‘fund manager tie’ as they all follow each other around!). However, they are generally not buying offices at the moment, leaving the way clear for smaller investors who don’t have to follow actuary’s advice, don’t need to retain cash and can fully invest where they encounter appropriate opportunities.
As such, high-net worth, overseas and family office investors are currently filling this void. While 14 months ago every office investment (and I mean every office investment) in Bristol was sold by best bids, the current lack of fund and institutional involvement has enabled negotiated settlements to occur without the lottery of blind bidding.
For example, my firm Hartnell Taylor Cook recently sold an office investment in central Bristol to a Hong Kong family office who picked up the deal some 13 months after it first went under offer to an institutional buyer; American based LCN Capital acquired The Assembly, a brand-new office building let to BT; and Ashtrom, an Israeli investor, was recently under offer for a £62 million ($86.2 million) prime office located in Bristol’s central business district. Finally, our firm has also recently launched a single let office investment on a prime business park, Aztec West, selling for an institution and anticipate the ultimate buyer to be a family office, private investor or family trust who will be attracted by the 6.75% quoted return.
So, there is opportunity but why should family offices look to the regions?
Unfortunately, thanks to the pandemic, a portion of the worker population now has limited appetite to travel by public transport or to work from a multi-storey building where the office is only accessible by a cramped lift. However, helpfully for this demographic, the regions can be more attractive, as commuters are able to travel by car to well parked offices.
As a Bristolian I am of course biased, but it isn’t hard to understand why professionals would want to move to offices in an attractive, well-connected city like Bristol, which boasts a great nightlife and culture, two outstanding universities with high graduate retention and where a prime office will only cost you £40 ($56) per sq ft. Considering that the average house price is £347,000 ($482,000)– a significant reduction when compared to other urban hubs across the UK—you begin to see why professionals may increasingly migrate to the regions post-lockdown. Goldman Sachs recently announcing its first UK regional hub of 40,000 sq ft in Birmingham and the Bank of England’s commitment to open an office in Leeds are just two examples highlighting the opportunity for family offices in the regions.
What will the office of the future look like?
Of course, readers cannot ignore our current backdrop—the world of work today is almost unrecognisable to that of 2019. Change around the way occupiers view workplaces and the importance of its environmental and social impact was already underway prior to the pandemic and has only been super-charged in its wake. However, the office is far from redundant.
A recent Jones Lang LaSalle survey established that 75% of workers still want the ability to come into an office and almost half expect their offices to provide spaces to socialise, meaning employers must now cater to mental, physical and social wellbeing expectations. Offices will, therefore, increasingly focus on communal spaces like rooftop gardens, wellbeing amenities like fitness rooms, yoga studios or onsite gyms, as well as new concepts like nutritional guidance in staff restaurants and on-site bicycle maintenance support.
The recent launch of Smart Core—a certification measure that scores a building according to its delivery of cost efficiency, sustainability, inspiring experiences and future-proofing—highlights how the notion of the office has evolved. Offices are no longer 9-5 desks, but they are also not dead; they are evolving and arguably in even more demand for specific uses.
What now for family offices?
Business parks were a new concept in the 1980s, hot desking hit the headlines in recent years and now buildings offering electric charging, yoga and a free pint of beer are all the rage. In short, offices and the way we occupy them has always evolved, so the current adjustments to occupier demand are nothing new. The real key for family offices is to act now. The larger funds will wake up soon as restrictions continue to ease and confidence builds. Smaller investors, therefore, have a unique window of opportunity to add in-demand assets to their portfolios for a good price. Delays to decision-making will only see this opportunity lost.