Managers adapt to tenant perspectives

What do occupiers seek from the space they lease? As tenants move on from the coronavirus pandemic and look toward revitalizing their businesses, landlords are moving to adapt.

For companies such as Henley Investment Management, which originates and manages real estate investment opportunities either through discretionary funds, segregated mandates or opportunity-specific SPV funds, this means making sure that their buildings are working for tenants whose staff want to get to know each other again after years apart.

Better space, not smaller

“Post-covid, from 2021 into 2022, most corporate occupiers were in assessing mode,” says Justin Meissel, the firm’s chief investment officer and managing director, Europe. “Since then, there hasn’t been a trend to smaller space, but to better space. If people are going to come into the office, they want higher specified space, more communal mingling areas and so on – no-one’s really going in five days a week to sit in a cube anymore. Those days are behind us.”

On an anecdotal level, he suggests there are features that tenants have now come to expect as standard. “Having some sort of cafe or food amenity outside of the internal canteen is really helpful because I think the whole point of coming in and being with your colleagues is socialization,” he says. “Also, wellness facilities, such as interactive classes or programs are increasingly popular, as well as things like running clubs which allow colleagues to spend time together in a non-work context.”

Sustainability is still high up the list for most occupiers, whether in the office market or elsewhere, Meissel says. “Tenants want high-quality space, and by definition most high-quality spaces are new, which means they are probably built to a decent industry standard.”

The so-called ‘flight to quality’ is evident across the retail, office and, to an extent, industrial sectors, as occupiers look to do more with less to combat higher costs. For retailers, this might mean looking at different store formats, bringing the products closer to customers in the case of grocers who want to open smaller local stores, or using the store as a display area for sales online.

“I’d say that tenants want high quality space”

Justin Meissel,
Henley Investment Management

But how does a company keep on top of its tenants’ demands? Understanding a tenant’s business model and ensuring the building and the terms of the contract work in a way that is supportive of that business model is one step toward a more sustainable income stream, says Sophie van Oosterom, global head of real estate at Schroders Capital.

“There is a need for a client-centric, business-led approach that seeks to understand what role assets can play accommodating prevalent trends in society or business,” she wrote recently. “The way assets are managed can contribute to the wellbeing and business models of their occupants. This needs to be understood and actioned to ensure long-term sustainable income and value from these assets for owners.”

For Henley, thinking creatively about how to offer something different for tenants is the most effective way of keeping up with its competitors. “We want to be a step ahead of everyone else by just paying more attention to things and being creative and asking the right questions,” Meissel explains. “It’s living and breathing it every single day.”