New report links good connectivity and financial returns for commercial landlords
The majority (65%) of the UK’s commercial landlords have undertaken work to improve the digital connectivity of their buildings, according to Cluttons’ annual connectivity report in partnership with YouGov launched today.
The key driver for making these improvements for three quarters (74%) of respondents is to increase market appeal – an indication that landlords are beginning to recognise the importance of connectivity as a vital utility, rather than a nice to have.
As a result, most landlords (77%) have been able to achieve increases in rents, reflecting the value of well-connected office buildings. In London and the South East, 7% of landlords have been able to secure significant increases of 10% and more, 32% of 5-10% more and 34% of between 2-4.9%. This compares to the rest of the UK, where 12% increased rents by 10% or more, 21% achieved 5-10% more, and a further 21% achieved increases of 2-4.9%.
In monetary terms, this means achieving up to an additional £8.50 psf in prime areas such as London’s West End, up to £7.00 psf in Midtown and £6.00 psf in the City.
The other key benefit of investment to improve connectivity is that 72% of landlords have also been able to reduce voids, or periods of vacancy. In London and the South East, this rises to 76%.
The value placed on better connected offices is also reflected in the views of tenants, with half of those responsible for digital connectivity in their office expecting their organisations to pay more – 6% said their business would be prepared to pay a premium of more than 10%, 18% would pay between 5 and 10% and a further 25% said between 2 and 4.9%.
Almost three quarters (72%) of tenants said that offices which are not well connected will become obsolete spaces – a significant increase of 10% on last year and a clear demonstration of how much more important digital connectivity has become.
Commenting on the report’s findings, John Gravett, head of real estate management at Cluttons, said:
“Connectivity is vital infrastructure for the productivity and prosperity of the UK, and this is reflected in the financial value attributed to it in our workplaces. Our research shows that many office landlords are recognising the commercial value of connectivity through increased rental yields and reduced vacancies and are making improvements to their buildings. Those which don’t embrace this change, risk obsolescence.”