‘And if it works for the tenant, it works for the landlord. We’ve identified real demand here, and we’re trying to react. But, of course, letting this space quickly means we can reduce the costly void periods on empty floorspace, and letting quicker means a real financial advantage to us.’
The cost of the fit-out, even if it is high, can be amortised over five, seven or 10 years – depending on expectations – making it remarkably cost-effective. Add the premium rent, and the avoided/reduced void costs, and it begins to make crystal clear sense.
On top of all that, landlords expect hybrid plug-and-play floorspace to let without the need for them to make contributions to the tenant fit-out (obviously, because the tenant isn’t fitting anything out) and without the normal incentives that oil the wheels of the office leasing scene. They may end up giving a month or so rent free, but that’s it. The rule for them is that incentives are reduced by about 85%.
‘Let’s be clear, this isn’t a massive money-spinner, but it is helpful, and whilst it won’t double the rents landlords can charge, it does broaden the scope of the tenants we can appeal to, and that is a good thing,’ Tom explains.
The widespread expectation is that plug-and-play will work best in a large part – perhaps a third – of the floorspace of older buildings and regional offices with floorplates of 10,000 sq ft or less.
It probably won’t work in buildings with large floorplates, mainly because they appeal to the kind of occupiers who are happy to organise their own fit-outs, and if landlords can let on traditional leases then this is (by far) what they would prefer to do.
For now, AshbyCapital is moving cautiously at Slough. ‘We’ll roll out more plug-and-play floorspace as it lets. We’ve got some interest in the half-floor we’ve already done, and the obvious next step is to do the other half, and then more further up the building,’ says Tom.
‘20-30% of the floorspace would be a good ballpark. For most developers, I think that will be the sweet spot, though some might go completely for plug-and-play,’ he speculates.
The big problem facing plug-and-play will be the approach adopted by valuers and, one step further down the line, by investors. Recently, property valuers have had some issues attributing realistic values to serviced office space – well advertised financial issues among serviced office providers have not helped.
The consensus is that valuation issues can be overcome and that, whilst hybrid offices might have shaved a quarter point or two off office valuations, that is not enough to upset investors. Indeed, investors might be pleased to see hybrid space included in a building because it broadens the product offer.
The valuers may not cause a problem. And investors might not care if they did. For now, the plug-and-play bandwagon is beginning to roll – and before long it will have rolled into an office building near you.