2025: A New Era for Office Occupiers?

A new year always makes way for predictions in various sectors and, given the interest surrounding the real estate market in recent years, the use of office space is no exception. 

Before the Christmas break, many real estate agents were setting out their predictions for the office occupier sector. There were various suggestions and articles stating that 2025 would be the year of growth with overwhelming positivity for landlords and tenants alike. This optimism comes from the potential for an influx of overseas investment, alongside a decline in interest rates and inflation, which will inevitably increase the availability of office space.

Interestingly, the Financial Times released an article shortly after the new year about the current trend in office space and how that will look going into 2025. The article explains that the most sought-after office space is now a fully managed building, offering “everything from reception and WiFi to the yoga studio in the basement and activities planned in the communal kitchen upstairs”. This suggests that landlords are looking at their buildings being multi-let, on short-term leases, with flexibility in their offering in order to attract the best tenants. 

Whilst flexibility in office space is good news for those tenants wanting short-term space, the costs of landlords offering this will undoubtedly be pushed to tenants. In general terms, costs of occupying a building are increasing rapidly and tenants will also need to factor in costs relating to meeting the Government's net-zero targets when they are thinking about taking on new space. 

In the last few years, the drafting of leases has seen a number of changes in the way in which landlords and tenants work together because of the increased desire to be more flexible on both sides. We have seen agreements on the ability to underlet part of the property, flexibility around the permitted use of the property and the ability to break the lease on more than one occasion within a particular term. This suggests that the market is increasingly leaning towards a more open and flexible market for office occupiers.

Amid numerous headlines about companies mandating the return of staff to the office, it will be interesting to see whether there will be a levelling off in what landlords offer to tenants, especially as costs continue to rise. Will tenants want to go back to the older structure of completing their own fit-out in order to keep initial costs down and further under control for the term of the lease? One thing is for sure, however, 2025 will be an interesting year for the office occupier sector.