David Scott at Aberdeen has provided an interesting opinion piece suggesting that the office sector, which has been struggling in recent years, may be turning a corner.

The article touches on a number of issues which have impacted this sector (and which are not unique to the office sector) such as impediments to development including construction costs, contractor availability and financing costs.

However, the shortage of premium office space along with the stabilisation of mandated days in the office, or in some cases where there has been a request for a full return to the office, as at Amazon, has helped push up rental income growth. 

At Maples Teesdale we have seen that quality and location are key aspects for corporate occupiers making decisions around real estate. Although occupiers may not necessarily be taking quite as much space as previously, they are looking for Grade A buildings which are well located, with excellent facilities and strong sustainability ratings. This ties in with the framework which David mentions that Aberdeen created in 2021 to define the characteristics of what they believe to be a successful performing office asset: flexibility; amenity; connectivity; technology; and sustainability.

There is still caution, as David does mention that although returns have turned positive the sector is yet to outperform all-property. It is also clear there are issues for secondary office class buildings. However, it is pleasing to see some positivity in the office sector and that in certain sub-sectors there is a thriving market with the potential for significant returns.