Rises in interest rates have led to pension funds pulling capital from property funds to balance their portfolios. The withdrawals have been happening so fast that top asset funds are putting exit restrictions on their funds. For example, the following now have restrictions in place: Legal & General, Blackrock, M&G and Columbia Threadneedle.
This is largely due to the fact that by their nature the funds own physical property and only a buffer of cash. If funds have significant withdrawals in a short period of time fire sales of assets become difficult to avoid. These restrictions are being put in place to slow the withdrawals so the funds can dispose of assets on a more sensible basis.
A spokesperson from Columbia Threadneedle Investments summarised the situation:
“We have introduced deferred redemptions on the Threadneedle Pensions Property Fund due to liquidity constraints resulting from the recent market volatility and a subsequent increase in redemption requests. We believe introducing this procedure is in the best interest of investors in the fund, allowing for an orderly sale of assets to meet redemption requests. We aim to return the fund to daily dealing as soon as possible.”
With over a billion pounds worth fo assets currently on the market, big discounts are expected on prime office buildings. Goldman Sachs is predicting that prices could fall 20 percent between June 2022 and the end of 2024.
So how will this reduce flexible office costs for customers?
Companies are expecting huge discounts when they negotiate their next flexible office contract. But for those looking for a 5* office - at least in the short term - this seems unlikely.
Why?
There is still high demand in the flexible office space market. The flexible office market in the UK is growing at pace. With staff wanting to work from home there has been a surge in demand for high-quality office space. Companies are taking less space but the space they take has to be good quality to incentivise their staff back into the office each day.
But it depends on what type of space you want
Across the board landlords and operators are talking about a split market. High-quality flex space sells quickly whereas older buildings are increasingly difficult to shift. The Instant Group has gone as far as to warn that “demand for high-quality space will soon lead to a shortage and push prices even higher”. This means for premium flex operators there is so much demand there is no need to discount prices. But, if your team is happy with a more basic or less modern space there are opportunities for some great bargains.
Things may change as agreements expire
In most cases, the underlying lease agreements operators negotiated at historic prices so they have no saving to pass on.
However, on the flip side, despite the huge price rises for energy bills we have also not seen price increases. This again is in part because operators were locked into historic energy rate deals. Those that aren’t have little choice but to match the prices in the market if they want to remain competitive. As new agreements are signed in this fast-changing market we may start to see prices moving around again.
Conclusion
Unfortunately, we are not seeing huge across-the-board discounts in the flexible office market as a result of these tailwinds. However, operators are keen to keep up occupancy rates and avoid voids which creates opportunities if you know what to look for.
At Tally Market we pride ourselves on being able to find the “hidden gems” and best deals on the market for our clients. Our team can quickly search our database of over 5,000 office spaces across the UK and provide you with a full market review. Simply complete your details in our comparison tool and see how your rates compare.
