A perfect fit? Landlords and occupiers see the benefits of fitted space across the UK office market

James Evans, national head of office agency, Savills

The UK office market has evolved dramatically over the past five years and it is no secret that one of the main catalysts has been changing occupier preferences, which have become concentrated on key factors such as flexibility, sustainability and a higher level of quality. This last requirement has become particularly prevalent, with many occupiers making a direct correlation between the quality of their office space and employee productivity.

 

Over the past 12 months, despite this fundamental shift in the office market, activity has remained subdued, with take-up levels across the regions in Q1 2024 reflecting a 17% decline on the quarterly 10-year average. However, this take-up figure was up on the same period last year and, with occupier confidence slowly returning to the market – a trend that we expect to continue into 2025 – there will be increasing pressure on the supply of the best space. Our research shows that, across the big six regional markets, there is only 1.1m sq ft of available speculative space under construction, which, combined with a reduced availability of prime space, means there is currently only prime supply equivalent to 0.8 years remaining in the market.

 

This supply-demand imbalance for prime office space will create an inevitable situation where those landlords with space that doesn’t fit into the top-tier quality bracket are needing to innovate in order to lease their offices. In response to this, one area where we have seen particular activity is around fitted space, with both landlords and occupiers increasingly recognising the benefits of space that is furnished and ready to go. Savills’ Q1 figures for this year show that fitted office space in the big six regional markets has already accounted for 10% of the overall deal count at 17 (34,408 sq ft), compared with 8% for the whole of 2023 across 64 deals (129,472 sq ft).

 

For occupiers, particularly smaller businesses with tighter cost constraints or larger tenants waiting to find suitable long-term space or struggling to navigate hybrid working fluctuations, fitted space not only provides convenience, but also offers flexibility through shorter-term leases, reduces delivery risk and, most importantly, removes any upfront capital expenditure.

 

From the landlord’s perspective, those that have the liquidity to provide fitted space are likely to be able to increase leasing velocity as well as drive rental premiums, with occupiers willing to pay a higher price for better-quality space, thus offsetting the cost of the fit-out.

 

The drive for quality and flexibility has been gaining traction over recent years and, propelled by a growth in the number of corporate occupiers accounting for a higher proportion of space within serviced and flexible offices, we have already seen a number of “traditional” landlords enter the flexible office market with good success. The appetite for landlords to convert existing space to provide fitted offices is yet another evolution of this and further blurs the lines between conventional and flex office space.

 

Moving forwards, it is vital that landlords continue to think ahead and innovate in order to ensure their office space remains relevant and attractive to discerning occupiers. For now, we expect fitted and flex space to play an important role in providing a solution for both landlords and tenants in an ever-evolving office market.


Hear James Evans, national head of office agency at Savills, speak at The Future of the Workplace on Wednesday 12 June 2024. He will be speaking on the panel discussion “Evolving office demand: Leases and occupier flexibility”, alongside Jim Larkin, data reporter at EG; Laura Oliver, partner at Clyde & Co; Simon Rowley, director of flex workspace at GPE; and CJ Uhure, director of group property at Reed.