Issue link: https://maltatoday.uberflip.com/i/1436376
I t is becoming evident that compa- nies employing office staff who dur- ing the past eighteen months worked from home are finding it difficult to lure them all back to the office. This is a new phenomenon that emerged out of the pandemic and for a small island with its own problems of commuting it is no surprise that office workers prefer to continue to work online. Can this factor influence property developers (or possibly the Planning Authority) to reassess their propensi- ty to invest in new commercial build- ings. Certainly, the offices of today must have additional amenities which were unheard of previously in order to lure back-office workers. It goes without saying, that one needs to take a risky bet to invest in massive new of- fice space apart from finishing - those already in the pipeline. The recent grey listing of the island by FATF makes it even harder to at- tract multinationals and possibly even to retain existing FDI - attracted in the past decade. The onset of the G20 tax rule which invokes a minimum 15% tax on corporates with a glob- al turnover of €750 million, may see about 20 larger investors to leave the island. Developers are wary about the potential glut of commercial space which needs hundreds of new jobs to be created (apart from repositioning ofs employees as has recently hap- pened when FIAU plans to move to a 4,000 sqm facility at Trident Park or the move by MBR to a Zejtun rented property). Highly sought-after areas which offer top-end office space, such as Tigné in Sliema, Balluta Bay, Pender Gardens and Portomaso in St Julian's, have so far managed to keep their values sta- ble due to high demand and low sup- ply, while offices in different areas did suffer a 20 to 25 per cent reduction in the quoted prices per square metre. In a recent media article, Zaren Vas- sallo (chairman of Vassallo group) was cautious about the rental market. He was quoted saying that half the bou- tique hotels in Valletta, either failed to open or are up for sale. In his opinion, the rental market had already seen a decline in 2019 and plummeted in 2020 due to the pandemic, and there were few signs it would grow back. Add to this, the recent tightening of bank credit towards mega property deals is another brake on the wheels of additional development. The drop in vacancies for global commercial space will also impair the value of the properties themselves. The pandemic's effect on office space is slowly becoming visible on surplus office space. It comes as no exagger- ation that working parents find they manage their family duties and work better by staying at home without the need to commute busy roads to work. Social distancing has reduced office space as desks had to be moved fur- ther apart to abide by social distanc- ing rules so perhaps this has reduced pressure by employers to lure back all employees. Naturally, in Malta, one wonders why certain State agencies continue to rent large office premises from the market when there is a reduction in demand due to remote working. The best in- dicator of the pressure on rentals was given by a recent report issued by Djar Report in conjunction with EY. The dataset submitted by the Djar report shows a notable drop in aver- age price/sqm rates for hospitality es- tablishments since 2020 Q3 (from c. €6,000/sqm to €5,500/sq.m), and a fall in average prices for offices in 2020 Q2 which was however recovered in subsequent quarters. It is pertinent to assess the impact of large developments already ap- proved by P.A. One of the more strik- ing property developments is that by the Trident Group offering the luxury Trident Park project. Located in the heart of the emergent Central Busi- ness District on the site of the historic former Farsons Brewery, it plans to secure an office space at 4,462sq.m out of an available total floor area upon completion of 15,745sq.m. Trident Group CEO Xuereb said: "Following the pandemic, when many companies opted for a hybrid of- fice-home model, two potential fac- tors seem to be emerging: the need for less office space, matched by the need for better quality office space, both in terms of facilities and envi- ronment and a lesser density per capi- ta. Another mega building (still under construction) located close to Trident Park is the Quad Business Towers set on a site with a superficial area of 11,200sq.m. Moving to the central Sliema district, one meets with a number of commer- cial developments mainly rented to gaming companies. One cannot but notice the tower designed by Zaha Hadid Architects pioneered by Dr Jo- seph Portelli to reach a commanding height of 112 metres. Named Mercury Tower, the 31-storey building would be 14.5 metres higher than the nearby Portomaso Business Tower. It is set to deliver over 44,000sq.m of commer- cial floor space, and when finished next year, it shall include a mix of Grade A office space and a range of retail and amenity outlets. Last, but not least, is Smart City which is a massive land parcel in the south originally planned to be built by a Gulf Arab consortium which flopped due to the global financial crisis in 2007/9. The highly politicised project saw its birth in 2006 and in exchange for public land, developers were ex- pected to build and run an ICT office hub creating 5,600 jobs. In conclusion, the commercial de- velopments listed above are not an ex- haustive list of office and retail space in the market, yet it makes one won- der if the pandemic has only partial- ly dented the drive by trigger-happy mega developers to continue in their strategy to bet on the property market as the proverbial milking cow. Omicron, Delta and the office rental market George Mangion George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island 8 OPINION 9.12.2021