Blackstone is the largest real estate private equity firm in the world. its portfolio of investments in London includes some of the capital’s most iconic office buildings and office campuses.
Being an occupier-only consultancy firm, DeVono Cresa never represents landlords. However, to present a holistic view on the market we will interview a number of landlords. This quarter we speak to Blackstone Property Management.
Blackstone Property Management is responsible for 6 million sq ft of diverse prime office space across many of London’s sub markets. It has been a successful year for them, and their forward thinking and cutting edge refurbishments have helped secure a wide range of leading global brands this year.
DeVono Cresa met Danny Egan, Senior Portfolio Manager for Central London at Nine Appold to discuss what the market looks like from the ‘other-side’ and how its understanding of occupier requirements underpins its leasing strategies across the portfolio.
When asked what the market has been like for Blackstone, Egan explains that ‘Whilst there was an undeniable sense of ‘taking stock’ following the brexit vote in June 2016 our pipeline of dialogues remained robust and momentum was re-established within a matter of short weeks.
As confidence quickly recovered we ultimately saw a flurry of significant leases being signed just before the Christmas period, indeed we leased over 240,000 sq ft of office space in the last two weeks of the year.
Moving into 2017, Blackstone has seen this demand sustained, with the speed of deals picking up in part due to competition and low levels of quality supply. “June and July are typically quieter months, however this year we completed on 270,000 square feet of new transactions.”
Egan explains, “It’s the quality of Blackstone’s products – creating occupier-focused workspace with the right building design, amenities and approach to leasing – that is the key to our success.” For Blackstone, the market is still working, and the business is positive about its approach and outlook. But it’s not just about the product. “We have a progressive approach to leasing – the key is to always seek to understand the specific drivers for a particular occupier. Blackstone is keen to consider and offer bespoke structured packages that work for the tenant, and we never lose sight of the fact that ultimately you are our client. This is a distinct shift from the typically rigid deal structure of rent per square foot and rent free. For many clients, this approach is vital to working the space take into their business plan.
Egan explains that “As we approach the end of 2017, potential clients in the market are increasingly active and ready to move. A key driver of this surge in market motivation is business growth and a flight to quality from occupiers who are increasingly cognisant of the importance of their workspace in the recruitment, retention, well-being and ultimately performance of employees. Deliveroo is just one mega-profile tenant that has called on Blackstone’s ability to cater for ambitious growth strategies. The rapidly growing online restaurant delivery firm surprised the market by choosing to relocate to the City, not a market usually associated with tech companies. However, the occupier was compelled to set up its HQ at the River Building on the basis of the quality of the building and working environment this offered its staff.
Trends in the market are changing. Nowadays, quality and suitability of physical office space is more often than not the deciding factor over location. In Blackstone’s experience tenants are considering all postcodes to get the office to match their ambitions.
Tenants’ views on commercial real estate as a whole have also shifted, according to Danny “Real estate is no longer seen as a necessary evil, and more an opportunity to attract and retain talent. It’s a cliché but it’s true.
The principal business concern for occupiers is looking after the workforce. The cost of replacing people who leave because of an unsatisfactory office environment, and the associated business continuity issues of this are seen to far outweigh the relative cost of the office. A good landlord will empathise with this and find the right solution.”
DOING IT DIFFERENTLY
Blackstone is ahead of the curve in adopting office space technology. At Chiswick Park the business has been the first to launch a revolutionary tenant (referred to as guests at Chiswick Park) communication app.
Developed by District Technologies, the app is designed to connect the nine thousand employees based at this vibrant west London commercial hub. It will bring together staff from companies such as Disney, Starbucks and Danone, allowing them to communicate with one another, as well as facilitating offers at nearby restaurants, cafes -= all on top of the legendary events programme available to the guest companies.
Blackstone is the first business in the UK to work with District Technologies on this app and Chiswick Park is the first place to use it.
BRIDGING THE GAP
For those businesses that require flexibility beyond the serviced office model but don’t want the commitment of a traditional leasehold lease, Blackstone has a ‘hybrid’ solution. By recognising that these businesses are more likely to be talking in terms of ‘staff number’ rather than square feet requirements, it is building out fully fitted office space to help cater for occupiers that don’t want the hassle of fit out.
The first example of this new space offering is the recently-completed, 70-person office at Chiswick Park. Its Gensler-designed, plug and play space and cutting-edge events and breakout areas are sure to be a hit with this ‘hybrid’ audience. And there will be more of these to follow.
This type of solution enables tenants to move quickly and alleviates the institutional delays often associated with traditional leases. On an estate like Chiswick, where businesses tend to grow quickly, it gives tenants the flexibility to move to a bigger space quickly and easily which is in everyone’s interest
THE FUTURE FOR THE OFFICE SPACE
Egan offers some predictions about what the future holds for the traditional office space: “People will always need a roof over their head. But embedded technology will proliferate – this where we’re going with the app.”
It’s clear from the market in general, and from Blackstone’s recent activities, that serviced offices are here to stay. Blackstone’s recent acquisition of The Office Group is testament to that. But a shift of direct landlords moving towards hybrid and more flexible contract solutions is also set to become more the norm and less the exception.
Danny also believes that agents and landlords will need to adapt to a market where location is no longer the key factor: “Agents need to make sure they know the whole market rather than just their submarket. Landlords also need to help ensure people are aware of their buildings – particularly agents and clients who wouldn’t typically know that geographic location. During Q4 2017 a Blackstone central London availability app is also being launched in this regard ”.
In a market recently besieged by scepticism and uncertainty, Blackstone has demonstrated impressive results and unbounded positivity. Whilst commercial real estate supply is currently diminishing, it appears the business’ confidence in its continued growth potential is well-founded.
The future certainly looks bright for Blackstone and others who are well-placed to cater for the ever-evolving marketplace.
Senior Portfolio Manager for Central London
Blackstone Property Management.
Read all about the Q4 2017 central London office market and interviews with industry market leaders in The Occupier.
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