Cluttons have found that office demand will subsequently decrease in the short to medium term, however, some industries should think twice before shedding city center office space post pandemic.
With one-third of workplace activities in the UK carried out remotely without any loss of activity, there will be an increase in hybrid and home working, thus lessening the demands for office space. Finance and insurance have noted the highest potential for hybrid working, with over 75% of time spent on activities that can be done remotely.
Cluttons suggest that even though tasks can be carried out remotely and away from the office, it doesn’t mean they always should. Before companies decide to reduce their office footprints, they need to understand and evaluate their value creation models and assess which activities can be done better off or on site and what impact this has on productivity.
Furthermore, a decrease in floorspace per working will not be directly proportional to the increases in home working, and de-densification will offset some the declines experienced. This in turn will restrict how much square footage employers can afford to lose, particularly if they want to accommodate higher numbers of staff at peak times.
Sophy Moffat, head of research at Cluttons, says: “Much has been discussed about new working patterns in the city in particular with anecdotal evidence suggesting that the city is quieter on Mondays and Fridays as people commute Tuesdays to Thursdays and make use of the days either side of the weekend; while some reports suggest Wednesdays to Fridays are the new working week. Either way, the usage of office space is less that pre-pandemic where, on average, workers spent four or more days predominantly based from the office. However, with workplace densities set to decrease to at least 1:10 for all spaces and larger for companies with bigger floorplates or solely occupied buildings; coupled with this ‘peak’ occupancy mid-week, the potential reductions in office space, and thus costs, will be much more limited.”
There are also increased advantages to city centre offices which Cluttons encourages companies to recognise. Predictions highlight that office buildings will be reaffirmed over the next 2 years, as GDP and employment return to pre-pandemic levels. Unlike rural office space or town centres, city centres have immeasurable benefits, including attracting the best talent in the industry. Moreover, mass relocation elsewhere can also be considered highly undesirable because of the cost implications.
Ralph Pearson, head of office agency at Cluttons says: “The fallout from the pandemic will bring to a head the ultimate balance of the office as a value generator, or cost centre. On the ground the limited evidence from committed mover’s points to a long-term shrinkage in floor space of circa 30% based on home working, but far less dense desking and a strong flight to high grade, flexible spaces. This will leave behind a swathe of mid/low grade space presenting unparalleled threats and opportunities for property managers and investors”.
The British Council For Offices reported that in 2017 businesses could legitimately increase its property costs by improving the productivity of its workforce. This trend is still an overriding factor for the future, with the creation of high-quality workspaces enabling a more productive workforce.
Supporting this claim, Cluttons forecasts ‘prime offices recovering completely from the losses experienced in the pandemic by the end of 2021, but ‘all offices’ – including poorer quality stock – likely to take until end of 2022.
Pearson concludes: “The 18m sq ft of stock to have come to the market across the UK post – pandemic cannot be anywhere close to readily absorbed by likely levels of future demand. This can only mean that in the medium to long term a significant proportion of non-prime office stock will need to convert to other commercial/medical/educational/social use but with the biggest gain to the residential sector potentially making city centre living more affordable and economically sustainable”.