Some businesses have less choice than others, particularly if they’re expanding and need more room to cater to the higher headcount, but for those looking for a similar amount of space to their current office, it can be the source of much debate.
The question of stay versus go is a long established dilemma for office occupiers, who have to balance the benefits of a new office – such as more modern fitouts and a feeling of progress – with the disruption and financial outlay that it can bring.
What is the situation?
Savills data shows that around 45% of the requirements in Central London are considering stay versus go options. At the moment, there are a number of factors that are making “stay” more appealing than perhaps it was 12 months ago. Firstly, the macroeconomic uncertainty has a knock-on effect for businesses who want to make plans for the future, and office space is part of that. Without a settled market, it can be slightly harder to commit to a lease on new space, so the idea of extending the current lease becomes more attractive. Businesses don’t want to add to the disruption that they and their employees are already dealing with.
Secondly, and probably more importantly, is the lack of supply in the pipeline for the next couple of years. There’s 9.3m sq ft set for delivery this year, but two fifths of that has already been pre-let. Looking further ahead, global uncertainty has created cost pressures that have implications for the viability of some projects, so although there is 29.2m sq ft of space due to complete in the next four years, the reality is that 40% of that is not yet under construction and may not be built in time. The overall impact is that completions in 2028 are set to be at their lowest level since 2015.
The third factor is the consistently high cost levels for fit-outs. Interest rates may be coming down but they’re still 4.25%, while material and labour costs have been rising globally. Even the most profitable of businesses would deem an outlay of £300 per sq ft a significant expenditure in a single financial year. As a result, more occupiers are looking at how they can remodel their existing office to give employees the energy that a new space brings without such a costly outlay.
What does that mean for occupiers?
For occupiers with lease events coming up, there are some important decisions to make. One of the most beneficial behaviours for an occupier is to build up a relationship with its landlord, which can help unlock opportunities either within the existing building or somewhere else in the landlord’s portfolio. Early engagement with other landlords too can be useful, opening up the possibility to work together on delivering a future workplace.
Occupiers tend to only extend a lease once before moving, but there are also no guarantees that the global economic picture will have settled in the next few years. None of us has a crystal ball, so it’s worth remembering that choosing to stay is still making a decision and betting on the future.
As always, there’s no one-size-fits-all solution to the stay versus go debate. If a really strong space that meets all the criteria becomes available at the right price, then the lack of stock in the development pipeline becomes irrelevant for that occupier. Choosing an office is a major business decision, and consideration should be afforded to the future as well as the present.
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