Office market upheaval means uncertain times for landlords

The UK office market is facing a period of significant upheaval, according to a new survey commissioned by workspace provider infinitSpace. The research paints what it says is a concerning picture for landlords, with a sizeable portion battling financial strain and even potential closure. Over 14 percent of the 250 surveyed landlords fear their office buildings could shut down within the next five years due to affordability concerns.

A quarter (25 percent) of respondents reported their properties are currently unprofitable, highlighting a struggle to generate income from their investments. Additionally, 31 percent grapple with rising debt repayments, suggesting many entered the market with significant financial leverage that is now proving difficult to manage.

The current economic climate is further exacerbating these issues. Nearly half (48 percent) of landlords say high inflation is making it challenging to manage ongoing operational costs for their buildings. This inflationary pressure adds another layer of difficulty to an already precarious financial situation.

In response to these challenges, over 17 percent of landlords have either already sold off office buildings or are planning to do so in an attempt to stay afloat. This trend signifies a potential shift in the ownership landscape of office spaces. Furthermore, a fifth (20 percent) of landlords have been forced to make redundancies within the past two years, highlighting the human cost of the financial strain.

However, there are glimmers of optimism. Despite the current difficulties, half of the surveyed landlords expressed confidence in the long-term financial performance of their office portfolios. This suggests a belief that the market will eventually rebound. Furthermore, over 60 percent believe office occupancy rates will increase in the coming years. This optimism could be fuelled by the expectation that a return to ‘normality’ will see businesses require more office space.

“Office landlords are facing a worrying array of financial challenges,” said Wybo Wijnbergen, CEO of infinitSpace. “The high cost of borrowing and inflation are putting immense pressure on the industry, squeezing profit margins and making it difficult to manage operational costs.”

Wijnbergen, however, believes there’s still hope for the office market. He proposes that landlords adopt a “strategic, future-focused approach” that caters to current market demands. This could involve converting underutilized office spaces into co-working areas, serviced offices, or even entirely new property types like residential units. Such transformations might require the assistance of external specialists, but Wijnbergen argues that embracing these changes is crucial for landlords to thrive in the evolving workspace landscape and secure a more stable financial future.