George M. Mangion is a partner at PKFMalta – an audit and business advisory firm
It is becoming evident that companies employing office staff, who during the past 16 months worked from home, are finding it more 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 PA) to reassess their propensity to invest in new commercial buildings?
Certainly, the offices of today must have additional amenities, which were unheard of previously, to attract office workers. It goes without saying that one needs to take a risky move to plan massive new office space apart from finishing –those already in the pipeline. The recent grey listing of the island by FATF makes it even harder to attract multinationals and possibly even to retain existing FDI – attracted in the past decade.
Can we say that developers are wary about the potential glut of commercial space, which needs hundreds of new jobs to be attracted (apart from repositioning of State employees as has recently happened when FIAU moved to a 4,000sq.m. facility at Trident Park or the move by MBR to a Zejtun property). The tightening of bank credit towards mega property deals connected with office or retail space 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 even in Malta. It comes as no exaggeration that working mothers find they manage their family duties and work better by staying at home without the need to commute to work in busy roads. Social distancing has reduced office space as desks had to be moved further apart to abide by social distancing rules so perhaps this sequence has reduced pressure by employers to lure back 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 space due to social distancing. The best indicator 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 average price/sq.m. rates for hospitality establishments since 2020Q3 (from c. €6,000/sq.m. to €5,500/sq.m.) and a fall in average prices for offices in 2020Q2 which was however recovered in subsequent quarters. So far, the average prices/sq.m. for other commercial property categories has remained mostly stable. Having commented on the trend for office space, it is pertinent to assess the impact of large developments already approved by PA. One of the more striking property developments is that by the Trident Group offering the Trident Park project. Located in the heart of the emergent Central Business District on the site of the historic former Farsons Brewery, it plans a total area committed for office space at 4,462 m² out of an available total, upon completion, of 15,745m2. Trident Group CEO Xuereb said: “Following the pandemic, when many companies opted for a hybrid office-home model, two potential factors 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 environment and a lesser density per capita. In the uncertain forthcoming months, as the economy recovers from the pandemic upset.
Another mega building, which is 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 commercial developments mainly rented to gaming companies. One cannot but notice the tower designed by Zaha Hadid Architects, pioneered by Joseph 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 44,000m² of commercial 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.
Another competitor for office and commercial space is the Vassallo Business Park, located in the central-north, having Wied il-Ghasel as its background, it provides unparallel green views, offering 28,000sq.m. Last but not least, is Smart City which saw its birth in 2008 and was expected to generate an ICT office hub for 5,600 jobs.
In conclusion, the commercial developments listed above are not an exhaustive list of office and retail space on the market, yet it makes one wonder if the pandemic has created a new mindset for trigger-happy mega developers who bet on the property rental as the proverbial milking cow.