Looking back at the Q1 2023 outlook, the market was subdued yet strong, with an increasing number of respondents expressing a belief that economic conditions were stabilising or even showing signs of improvement, which is a promising sign for the rest of the year.

London’s prime office sector is poised for substantial rental gains in Q2 and Q3, with a net balance of +29% anticipated. This surge in rent is driven by an increasing number of businesses realising the significant advantages that come with occupying top-notch, cutting-edge spaces. The Unica Capital REIT Portfolio has benefited from this demand and is positioned to offer high returns for long-term real estate investments, with a portfolio made up of quality rental spaces in sought after locations.

Sustainability
Increasingly the allure of modern, environmentally conscious buildings with superior amenities has captured the attention of forward-thinking companies seeking to attract and retain top talent.

Deloitte’s Crane Survey confirms this trend, reporting that a record number of office refurbishment projects covering 3.2 million square feet are currently underway in the city. This surge in activity is driven by landlords racing to achieve Energy Performance Certificate (EPC) B ratings by 2030. Unica Capital leads the way in this prime office space sector with a portfolio that is tailored to meet the evolving needs of modern businesses. Our properties not only embody excellence but also boast exceptional environmental credentials that align seamlessly with the sustainability goals of forward-thinking organisations. With a strong commitment to energy efficiency, Unica Capital offers an outstanding selection of office spaces that require no additional investments to meet government targets—a remarkable achievement in a market where a mere 20% of London’s offices currently meet these stringent standards.

Industry leaders, including Helical and GPE, echo the need for sustainable development in prime commercial office space. Helical’s CEO, Gerald Kaye, emphasises the strong tenant demand for sustainably designed buildings with top-quality amenities, leading to rising rental values. GPE shares this confidence in London’s tenant demand and has increased its rental growth guidance for prime offices to 3-6%. CEO Toby Courtauld highlights the growing divergence between the financial investment prospects of premium office spaces and the rest, particularly in the highly sought-after West End, where sustainable and well-designed spaces are scarce.

Flexible Spaces
The increasing demand for prime office spaces in London is driven by a variety of factors. Businesses, both large and small, are embracing the concept of hybrid working, leading to a healthy mix of tenants with requirements to downsize. Simultaneously, prominent organisations are opting to leave their outdated headquarters behind, seeking refuge in modern, environmentally conscious buildings that project a strong commitment to sustainability.

Unica Capital’s team of Property Investment specialists possess an unparalleled ability to identify, finance, and manage these real estate opportunities. With their expertise and strategic insights, they ensure that our clients’ investment needs are not only met but exceeded. Our track record speaks for itself, as we consistently deliver exceptional investment vehicles tailored to our clients’ exacting requirements.

Investors, too, are eagerly embracing the positive outlook for prime office rents in London. Despite a brief period of caution, the latest figures indicate a renewed confidence, with a net balance of -14% for investor demand in Q1—an improvement from the previous quarter. This reaffirms the resilient nature of London’s commercial market and the vast potential it holds for astute investors seeking promising opportunities.

Unica is at the forefront of London’s transformative real estate investment landscape, driving the surge in prime office rents. With our unwavering commitment to excellence and our portfolio of energy-efficient, state-of-the-art spaces, we are shaping the future of the city’s office market. As prime office rents increase, Unica Capital and our investors play a pivotal role in the city’s growth and prosperity. London’s skyline is set to reach new heights, and Unica Capital is leading the way.

Recent data from Transport for London is showing that tube journeys are at around 80% of pre-pandemic levels, indicating that even with more people than ever choosing hybrid working, the vast majority have a primary base within an office setting. To lure workers back – and retain the best staff for longer – gone are the days of minimal offerings in second-tier spaces; bike storage, some communal recreation space, and a well-stocked fridge.

With conclusive evidence that since 2019 there has been an accelerating sales price gap for similar buildings with and without sustainability ratings, which now stands at 25% for London offices, the need for upgrading buildings to offer high-quality, amenity-rich, and energy-efficient offices has never been more urgent. The demand for these spaces will only increase now hybrid working has settled and companies revise their net zero targets.

Under the UK Minimum Energy Efficiency Standards (MEES), commercial buildings with an Energy Performance Certificate (EPC) rating of less than B by 2030 will be unable to legally lease their buildings. Further, research from Deloitte found that 80% of London offices do not currently meet these standards and significant refurbishments are required to prevent energy-inefficient offices from becoming stranded and unable to be leased. For those ahead of the curve the rewards are clear to see. With a squeeze on supply as some delay in meeting energy efficiency standards that by 2030 will be imperative if a portfolio is to remain active and producing the highest yields possible, it is more vital than ever to secure future-proof commercial assets whose market appeal will endure.

While this may seem like bad news for companies operating in the sector, their are opportunities in property market and in fact present opportunities to the likes of Unica Capital.

Our solid financial position allows us to take advantage of falling asset prices to boost the size, breadth and quality of our portfolio in order to capitalise on a long-term commercial property strategy.

If a recession takes place, this could lead to a slowing rate of rental growth, lower occupancy levels and higher default rates. With recent acquisitions reaching £300M over the last year, consisting primarily of Prime AAA office accommodation and with little to no exposure to mature, low-yielding London offices, Unica’s portfolio consists of high-quality assets that are likely to perform well during, and after, an economic downturn.

Our office properties, for example, are energy efficient and well located in central London’s most desirable locations, including Westminster, Victoria, Soho, Mayfair and the City. These are locations that are likely to experience robust demand even during a period of economic decline. Similarly, our retail assets are situated in the prime shopping centres of Oxford Street, Mayfair, Soho and Westminster – areas that are less likely to be vacated by major brands who are seeking to rationalise their portfolios as online retailing grows in popularity, but who still want a flagship or high-profile physical presence.

With energy efficiency, prime location and high-quality spaces a focus, coupled with a strong financial position, even in what looks like turbulent times there are opportunities to be had that are likely to be very rewarding for investors.