Editorial | Office glut requires re-imagination of commercial spaces

Real estate experts and business leaders speaking at a Malta Business Network event last January sounded the alarm over the glut of existing office space.

The situation is only expected to worsen as the supply of new office space continues to increase while demand is experiencing a slowdown.

Part of that slowdown is the result of changed work patterns after the COVID pandemic. With homeworking becoming a mainstay for many office workers during that two-year interlude, many workers requested to keep those arrangements after the pandemic. Some companies required less office space as a result, leading to a drop in demand.

This situation has pushed office rental prices down with some real estate operators claiming these have reduced by a fifth. This is not entirely bad, since commercial rents have been on the rise for a good part of the past decade.

Indeed, what is happening now is a market correction, which will also serve to filter out the older properties that are not equipped with amenities that many office workers expect today.

One can only hope that developers did their homework properly before embarking on massive projects that include offices as a key component. There are several large projects in the pipeline – DB’s City Centre and Anton Camilleri’s Villa Rosa, both in St George’s Bay, Paul Xuereb’s PX Tower in Paceville, the Stivala Group’s Townsquare in Sliema and the ST Tower in Ta’ Xbiex, Malta International Airport’s Skyparks 2 –  some of which are already being built, which will undoubtedly add to the pressure over the coming years unless demand picks up again.

The consensus among panellists at the January event was that it is time to reassess the commercial property market in response to shifting dynamics.

Indeed, last year, Smart City was among the first office space operators to acknowledge the glut in office space when it embarked on a review of its masterplan.

Smart City ditched plans for more office blocks on its grounds, citing “significant saturation” of office development in Malta. It was a reversal of the project’s original idea to become a knowledge city in line with similar developments in the United Arab Emirates.

Now, the new Smart City masterplan allocates plots previously earmarked for information and communications technology (ICT) offices to other purposes like development related to education and residential institutions.

Smart City will be housing the new campus for the Institute of Tourism Studies and the American University of Malta. Admittedly, these two projects were enabled by government intervention but if they do materialise they will be contributing directly and indirectly to the economy.

Developers would do well to assess alternative options while their projects are still on the drawing board. Other operators of older buildings may want to rethink their use and invest to bring them in line with the economy’s current demands.

While the government must not interfere in the market – after all investors should have carried out a risk-reward analysis of their projects – it may want to realign its policies to encourage developers to re-imagine prospective office space into different productive spaces.

The idea would be not to entirely lose the commercial space but instead re-use it for current and medium-term economic needs.