As businesses across the UK and EMEA region grapple with the post-pandemic reality, a new challenge is on the horizon: the Energy Performance Certificate Band B (EPCPB) regulation set to come into force in 2030. This mandate will require commercial properties to meet high energy efficiency standards, forcing companies and landlords alike to reconsider their office spaces. Coupled with the growing trend of hybrid work and fluctuating real estate dynamics, the question of whether to upsize, downsize, or stay put has never been more complex.
The EPCPB regulation is a significant factor shaping the future of office real estate. By 2030, all commercial properties must achieve at least a Band B energy efficiency rating, a standard that many older buildings currently do not meet. Landlords, aware of this impending deadline, are increasingly pressuring tenants to commit to longer leases. This gives them the financial security to invest in necessary upgrades.
However, for tenants, this presents a dilemma. Staying in a non-compliant building may lead to higher costs down the line, either through increased rent to cover refurbishment expenses or the risk of occupying a non-compliant space post-2030. On the other hand, relocating to a more modern, energy-efficient building now could be a proactive move that aligns with long-term sustainability goals and corporate social responsibility (CSR) initiatives.
The pandemic has permanently altered the traditional office model, with hybrid work becoming the norm for many businesses. This shift raises critical questions about the actual need for office space. If a significant portion of the workforce continues to work remotely, the rationale for maintaining or even expanding current office spaces diminishes.
However, the hybrid model also brings new requirements. Office spaces need to be more flexible, accommodating fluctuating occupancy levels and fostering collaboration when employees do come in. This could mean reconfiguring existing spaces rather than reducing square footage. For some, downsizing might be the answer, but for others, investing in multifunctional spaces that support hybrid work could be more strategic.
When considering whether to upsize or downsize, companies must evaluate several factors:
Workforce Needs: How many employees will need regular office access? Does your company plan to grow soon? Upsizing might be necessary if you anticipate business expansion or need to accommodate more in-office collaboration. Conversely, if hybrid work is reducing daily office attendance, downsizing could be a cost-effective solution.
Location and Amenities: The office's location will play a critical role in this decision. Premium locations may offer better amenities, proximity to clients, and easier access for employees. However, they come at a higher cost, making it vital to balance location with budget constraints.
Real Estate Trends: Office rental rates are expected to experience significant shifts. In some markets, particularly where there is a surplus of office space due to increased remote working, rents may stabilize or even decrease. However, in prime locations or buildings that are EPCPB-compliant, rents will rise as demand grows for compliant space.
Real estate agents and advisors will play a crucial role in helping companies navigate these decisions. Their expertise will be vital in assessing the energy efficiency of potential office spaces, negotiating favourable lease terms in light of upcoming regulations, and identifying properties that align with a company’s long-term strategic goals.
Companies must work closely with these agents to understand the nuances of the market. For example, agents can provide insights into areas where rents are likely to drop, or where future infrastructure developments might increase property value. They can also advise on the benefits of flexible leases, which might be preferable in an uncertain economic and regulatory environment.
Several trends are emerging in the office real estate market, influenced by regulatory changes, the shift to hybrid work, and broader economic factors:
Sustainability as a Key Driver: Buildings that meet or exceed EPCPB standards are likely to command higher rents and see greater demand as companies seek to align with sustainability goals.
Flexible Workspaces: The demand for flexible office space, such as co-working hubs, is expected to rise. These spaces offer companies the ability to scale up or down quickly, adapting to changing workforce needs without long-term commitments.
Tech-Enabled Offices: As hybrid work continues to grow, the integration of technology in office spaces will become more important. Offices will need to be equipped with the infrastructure to support seamless communication and collaboration between remote and in-office employees.
Decentralisation of Office Locations: With the rise of hybrid work, companies may opt for multiple smaller offices or hubs closer to where employees live, rather than maintaining a single, large headquarters. This decentralisation could lead to a redistribution of office space demand across cities and even suburban areas.
In the face of these challenges and opportunities, businesses must adopt a strategic approach to their workplace needs. This involves not only reacting to forthcoming pressures like the EPCPB regulation and hybrid work but also anticipating future trends in real estate and workforce dynamics.
For some, this may mean downsizing to reduce costs and improve efficiency. For others, it could involve upsizing to support growth and enhance collaboration. Regardless of the decision, the key will be creating an effective workspace that balances compliance, employee needs, and long-term business objectives.
Habit Action brings a unique Workplace Strategy led approach and process to address these exact challenges, enabling occupiers and Teams the clarity they need when making business case decisions. Whilst the requirements for every organisation differ, considering both tangible and cultural dynamics, Habit Action's Workplace Strategy process is renowned for providing visibility and clarity to both regional and global Clients.