Though the pandemic seems distant, the real estate market remains disrupted, with European office utilization rates still low and vacancies rising.
The pandemic may seem like a distant memory, but many things stubbornly refuse to go back to normal. There’s no better example than the real estate market. All across Europe, office utilization rates are still well below pre-pandemic levels – which, in any case, were no higher than 70%.
High vacancy numbers are forecast to rise even more in many major cities, posing a grim outlook for investors and lenders. So, what’s the solution?
As always, it’s smart to begin with the fundamentals. Despite an unprecedented shift away from the daily commute, the office is still a fundamental part of life for people, businesses, and the broader urban economy.
Interestingly, as organizations analyze the overall impact of working from home, more are beginning to apply policies of office-based working. For example, the UK civil service now expects staff to spend at least 60% of their work week face-to-face with colleagues, partly because people say they work more productively in the office than at home.
In other words, there’s no doubt that the concept of the physical office still appeals. The question is: what kind of office do owners and need to invest in?
Sweet spot
It’s all about the right space – the right size, the right location, and the right type of product. At the Instant Group, we help landlords find this sweet spot with data and insights to make smart investment decisions when it comes to opportunities in flexible workspace.
Why? Because traditional returns and models don’t stack up anymore. The cost of new debt ranges from 6% to 7.25%, and office yields in London are around 5.5% for the City and 4.0% in the West End. Why accept these yields and take equity risk when you can get higher returns from risk-free gilts or treasuries?
By integrating flexible space into your portfolio, you can improve cashflow, increase value, and provide a genuine community asset. A serviced-based flexible workspace can deliver up to 30% higher returns after CapEx compared to traditional leases over a 10-year period. Of course, there’s no guarantee of success, but well-run flexible spaces can generate more operating income to mitigate some of the challenges of valuations and loan-to-debt ratios.
Max your flex investment
At The Instant Group, we help you fill space and make smart investment decisions. We give you access to the world’s largest marketplace for flexible workspace to drive demand and reduce vacancies. Our unparalleled data and insights platform unlocks the market intelligence you need to make more informed decisions to evolve your portfolio.
This means helping you unlock the greatest flex potential from your assets and de-risk your investment using a data-based approach and the right commercial model.
If you want to know more, have a read of our latest whitepaper which directly compares the two models. In 10 concise pages, we assess the benefits and risks of each model based on real-world market data and revenue trends. Get your copy here.
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