The home truths that could spell the end of the of­fice

There will still be the need for cen­tralised work­ing spa­ces but the prop­erty mar­ket faces a seis­mic shift

The Daily Telegraph - Business - - Business Comment - GARRY WHITE Garry White is chief in­vest­ment com­men­ta­tor at wealth man­age­ment com­pany Charles Stan­ley.

Boris Johnson is ex­pected to re­it­er­ate his view that Bri­tons should get back to the of­fice to­day, as he sets out a road map to recovery. He will re­in­force the state­ment made by An­drew Bailey, the Bank of Eng­land Gov­er­nor, ear­lier this week that peo­ple need to get back to the city cen­tres to pre­vent the UK be­ing in a re­ces­sion “for a very long time”. How­ever, this is all likely just wish­ful think­ing.

Bri­tain’s work­ing prac­tices are un­der­go­ing a per­ma­nent, seis­mic shift and this will change the coun­try’s prop­erty mar­ket per­ma­nently. The Covid-19 sit­u­a­tion has ac­cel­er­ated the neg­a­tive trend that was al­ready in place in re­tail prop­erty, but has also pre­sented land­lords with a new, po­ten­tially painful trend. De­mand for of­fice space in prime lo­ca­tions is now likely to fall, per­haps sig­nif­i­cantly.

Com­pa­nies have been at­tracted to large cen­tralised conur­ba­tions be­cause highly de­vel­oped trans­port in­fra­struc­ture can bring work­ers from a wide catch­ment area, al­low­ing them ac­cess to the best pool of talent pos­si­ble. This has cre­ated pock­ets of very high land val­ues, such as seen in the City of Lon­don, and led to the cen­tral­i­sa­tion of much of the UK’s busi­ness ac­tiv­ity in the cap­i­tal.

How­ever, lock­down has re­sulted in most staff em­ployed by Bri­tain’s ma­jor cor­po­ra­tions switch­ing to work­ing from home. IT de­part­ments had to rapidly up­date their sys­tems and se­cu­rity pro­to­cols to al­low busi­nesses to con­tinue to op­er­ate with min­i­mal dis­rup­tion to cus­tomers and clients. Given the cir­cum­stances, this has been a suc­cess­ful tran­si­tion. It has low­ered re­sis­tance to work­ing at home at man­age­rial lev­els – and it could cut costs in a fi­nan­cially chal­leng­ing time.

Peo­ple have also seen sig­nif­i­cant ben­e­fits to their well-be­ing by re­mov­ing com­mut­ing for their daily rou­tine. UK start-up net­work Founders Fo­rum found that 94pc of Bri­tish com­pany founders and man­agers it sur­veyed for the World Eco­nomic Fo­rum (WEF) had worked from an ex­ter­nal of­fice prior to pan­demic-re­lated lock­downs. De­spite their brick-and-mor­tar set-up, more than 90pc were able to ac­com­plish the majority of their work re­motely. The con­clu­sion based on the re­sponses was that a re­al­is­tic post-pan­demic work sce­nario could in­volve three to five days of re­mote work a week, with a cou­ple of ded­i­cated in-of­fice days for the en­tire team.

It is not only sat­is­fac­tion with the new work­ing from home ar­range­ments that will stop a rush to the of­fice from the sub­urbs. Peo­ple are ner­vous about pub­lic trans­port and so­cial-dis­tanc­ing mea­sures mean that it’s ac­tu­ally quite time-con­sum­ing get­ting peo­ple into large-ca­pac­ity build­ings such as those in the City. In places of high land value prop­erty de­vel­op­ers have been reach­ing for the sky to gen­er­ate the re­turns re­quired to make the fi­nan­cial com­mit­ment to con­struct. When only one or two peo­ple can use a lift si­mul­ta­ne­ously, get­ting large num­bers of peo­ple back into an of­fice is time con­sum­ing – eat­ing fur­ther into the day af­ter a long com­mute. It isn’t phys­i­cally pos­si­ble to get peo­ple into these build­ings ef­fi­ciently, pos­si­bly un­til a vac­cine is de­vel­oped. Many com­pa­nies also re­main cau­tious, even af­ter dis­tanc­ing rules were re­laxed to “one-me­tre plus”, with dis­tanc­ing of two me­tres likely to re­main best prac­tice for many.

All of this im­plies that ar­eas that were pre­vi­ously re­garded as prime prop­erty are un­likely to be as valu­able as they were in the pre-pan­demic world. As the recovery gath­ers pace, highly cen­tralised coun­tries such as the UK will see the bulk of this ef­fect. In Europe, rat­ings agency Fitch thinks that Lon­don and Paris will be most im­pacted by this new trend. “We ex­pect re­gional mar­kets, and cities with more dis­persed of­fice pro­vi­sion such as Am­s­ter­dam or Helsinki, to be less af­fected,” Fitch said.

So­cial dis­tanc­ing mea­sures mean that the cost per worker of an of­fice space has in­creased – at least un­til mea­sures are re­pealed. Clean­ing and other safety mea­sures come with a cost. It is un­likely that many busi­nesses will be will­ing to sign new leases be­cause of the un­cer­tain out­look for the econ­omy in the recovery pe­riod that lies ahead.

These new trends could also have an im­pact on res­i­den­tial prop­erty mar­kets. Not only has the talent pool for com­pa­nies in­creased sig­nif­i­cantly when work­ing from home is taken into considerat­ion, as it is pos­si­ble to em­ploy new staff in “un­com­mutable” ar­eas, but it could en­cour­age a move from ur­ban to more ru­ral, as peo­ple can more eas­ily fit such a tran­si­tion into their work­ing life.

There are some bright spots in the UK prop­erty mar­ket, but mostly re­lat­ing to in­dus­trial as the rate of up­take of e-com­merce gath­ers pace. But, for most of the UK com­mer­cial prop­erty mar­ket, things look like they are chang­ing for good.

Of course, pre­dict­ing the demise of the of­fice is a step too far. Many peo­ple pre­fer of­fice work and are itch­ing to get back. There are also lim­i­ta­tions to work­ing from home – that pass­ing con­ver­sa­tion in the stair­well that keeps you in­formed, and the cre­ative spark that comes with in­ter­ac­tions be­tween peo­ple. How­ever, the de­mand out­look for ex­pen­sive of­fice space looks gloomier than be­fore.

Fitch said it did not be­lieve a large-scale shift to work­ing from home was likely, given how sub­op­ti­mal it is for peo­ple in con­fined or un­suit­able liv­ing space – par­tic­u­larly for house­shar­ers. It also raised con­cerns around well-be­ing, lone­li­ness and men­tal health. In­stead it sees the rise of shared work­ing spa­ces as a com­pro­mise. So, maybe uni­corn WeWork was re­ally on to some­thing, be­fore its founders im­ploded the com­pany with their hubris.

‘Work­ing prac­tices are un­der­go­ing a seis­mic shift and this will change the coun­try’s prop­erty mar­ket per­ma­nently’

For the com­mer­cial prop­erty mar­ket, things look like they are chang­ing for good

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