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
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