Remote work, ‘levelling off’ in firms settling in Malta drive gloomy outlook for commercial real estate

After years of undersupply in prime commercial real estate, the local market has finally caught up with a variety of new projects coming online, adding tens of thousands of square metres of office space to the supply.

However, the timing is proving to be off, with demand for office space actually receding, driven in large part by the remote work (or work from home) phenomenon and other important factors more particular to the Maltese economy.

During an event organised by the Malta Business Network (MBN) held on Monday evening, one manager of several office buildings, who preferred not to be named, said the post-pandemic shift has been “remarkable”, with some companies – especially those involved in iGaming – significantly downsizing their office space: “Companies that used to rent three floors now rent one – it’s that big of a change.”

Another commercial property owner said that her buildings have empty space for the very first time since they were constructed.

The event, curated by Justin Mizzi, a property valuer working with architecture firm Archi+, sought to discuss the future of office properties and whether the island has reached saturation.

Lara Camilleri, COO of Konnekt, recruitment experts, said that “work-from-home is certainly a reality, thanks to the COVID-19 pandemic and the way it forced companies to adapt.”

That does not mean that there is no push-back against the drive to work from home, with the question of company culture and the intangibles resulting from working together from an office being a key sticking point: “Company culture is simply irreplaceable,” said Belair Property managing director Ian Casolani. “You can try to do what you can to appease the top staff, but some things, you cannot compromise on.”

Catherine Hurley, head of global accounts at AIS Interior, an international office design and build company, added that good workplace design aims to create what cannot be replicated at home – serendipitous encounters most of all.

“You want to send an email but meet the colleague at the water fountain. That’s an email done away with, a meeting not required. It’s about knowing how people work and how they interact with their environment.”

Hili Properties managing director George Kakouras concurred, saying that although people working remotely might very well perform certain activities better, these tend to be individual or software development-related tasks, for example.

“When it comes to looking at the big picture, and having tested this theory in the COVID years, it simply works better when people work together in the same physical environment, at least a few times a week. Connecting with colleagues fuels creativity, drives teamwork, and creates a deeper sense of community and pride, which empowers people,” he said.

“It’s not the office building alone, though that enhances productivity and creates space for collaboration,” said Mr Kakouras. “The value in going to the office is the people you encounter, not the place itself – even though well-designed spaces elevate the employee experience. Selecting the right environment reflects the culture of the company and the way management promotes collaboration and drives inspiration and innovation. Working from home does not always work ‘just as well’, and it’s not just leaders who are recognising this value. Balance is the aim of the game.”

While this may be the case for employers and management, when it comes to employees, the picture is as yet very different: “Nowadays, the ability to work from home is very much a ‘nice-to-have’ for everyone,” said Ms Camilleri.

The recruitment specialist said “the reality is that it’s a candidates’ market at the moment, and employers that don’t offer flexibility take longer to fill positions.”

She noted that of the three main questions she gets from job applicants, two are directly related to flexibility: “What’s the salary?” “Does the job offer work from home?” and “Where is the office?

“They want to avoid traffic, and don’t want to go to an office that is too far away,” she explained.

But the reason for the relatively weak interest in office space cannot be pinned squarely on the work from home phenomenon.

Angelique Spina, director at PwC Malta, pointed out that the commercial market remains small, with only some 250 transactions taking place in any given year.

“There are a number of concerns related to the commercial sector,” she told attendees, noting the lack of transparency in contracted yields and rates – which dampens interest from abroad – and the levelling out in the number of companies setting up in Malta.

Mr Casolani described the current moment as “a perfect storm” with the convergence of oversupply in office space as new developments rapidly come onto the market with a higher cost of living and “a lifestyle offering that is not what it once was,” not to mention greylisting.

Ms Spina added that although Malta’s population has continued to increase, this increase is mainly registered in Third Country Nationals (TCNs), with the number of EU citizens living in Malta having not yet reached its pre-pandemic peak.

She explained that EU nationals are more likely to be in office-based positions, with their number linked to the number of companies offering desk-based jobs in Malta.

“Going forward,” she continued, “there will likely be a gap with more supply than demand, and that demand will be directed towards new destinations offering more amenities and more quality offerings. Low quality commercial properties, or those with a particular problem, such as a lack of parking, will likely suffer.

Mr Kakouras agreed wholeheartedly, warning that “things will be very difficult for those properties that do not offer unique features for the workforce of the future. Properties that do not cater for the wellbeing of employees, its environmental impact, shared spaces for collaboration and technology to maximise efficiency, will lose out. In such cases, it might very well be time for owners of such properties to consider adapting their properties to other uses.”