The East Midlands Where to Next for the Office Market in Leicester?


Whilst it is hard to foresee exactly how the office market will perform over the next 3-5 years, it is likely that a similar trend to today will continue, whereby occupiers seek better quality accommodation, at the expense of poorer quality buildings. In view of this, there is perhaps the potential that as Grade A accommodation diminishes, that demand trickles down to the better quality Grade B sector, but we are not seeing this on the ground presently.


Indeed, where no Grade


A accommodation is provided, then it is more likely that the larger more


corporate occupiers who are not prepared to settle for secondary accommodation will look at alternative locations completely. This will further derail the city’s wish to enhance its attractiveness to occupiers and to promote itself as a credible and progressive office location that it has the potential to be.


Remote and agile working practices are set to remain, and it is certain that some occupiers who have lease events during this timeframe will choose to improve, but rationalise their accommodation needs. However, with the start of greater drift / encouragement back to the office, this will hopefully increase annual take up at both of Grade A and Grade B levels, counterbalancing the initial perception of difficult times ahead.


A factor likely to have significant impact on the Grade B market, assuming that there is no further backtracking on ‘green issues’ by the government, are Minimum Energy Efficiency Standards (MEES).


Generally, the Regulations state that a tenancy cannot be granted if the property has an EPC rating of F or G. It has been indicated that these requirements will tighten again, with a proposal that commercial properties must have a rating of C or higher by 1st April 2027, and B or better by 2030. Like all locations, Leicester has a number of existing office buildings that would fall below this threshold, preventing them being let without significant capital expenditure, possibly. Against a backdrop of low rents, limited demand for properties of this nature, as offices at least, and significant empty property holding costs, it is potentially unlikely that landlords will invest these sums, preferring to explore alternative uses such as residential conversion. From an investment perspective, investors are also unlikely to consider buildings with low EPCs or if they do, it will be at a value that reflects the costs of bringing it up to the required EPC level, which in turn will drive down values.


We anticipate that in view of MEES and the changing office dynamic, with little demand for poorer Grade C accommodation, that we will continue to see these buildings being taken out of the market altogether and converted residentially or, as we have recently seen on occasion, for educational or quasi-health purposes. The concern here will be that if there is insufficient demand from either the office or alternative sectors that these buildings will remain vacant.


As is usually the case, the better quality buildings let well,


demonstrated by recent lettings to Otis and Emerson out of town, and Gallaghers and EuropCar taking No.1 Great Central Square within the city. As a result, speculative development is to be wholeheartedly encouraged, but I have a concern that significant development on this basis is hard to envisage within the immediate future, in view of the factors above. I hope I am wrong.


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