Office Space Post-Lockdown
The pandemic affected the work-life balance of millions of people due to the Government’s lockdown, requiring us to work from home for many months. Whilst tricky for some, others realised that they were capable of doing their jobs from home, with no need to commute to and from an office every day, raising the question of the role of office spaces going forward. Going forward will it be business as usual, or will our work lives be entirely different?
Private Bank Arbuthnot Latham sat down with their real estate banking team, Savills and Allsop to discuss their views on the future of office space.
What trends are you seeing from businesses regarding the way spaces in their buildings are being utilised, and do you believe these trends are here to stay?
Mat Oakley, Director European Commercial Research, Savills
“It may be a little too early to see a definitive direction for where the office space is headed. Feedback from tenants is that they have no idea about what’s ultimately going to happen.
“The businesses occupying these office spaces have conducted many surveys since the Government’s lockdown, asking their staff how they would like to work post-lockdown. Most staff respond with a preference to work with a more flexible working arrangement.
“We’ve seen some prevailing actions adopted, such as social distance proofing the office, making home-based workforces effective and some sector-based emerging trends.
“Starting with the latter, industries that were already under cost pressure prior to the pandemic, most notably, retail and investment banks, are actively reducing their office spaces. I’m sure we’ve all seen in the news big financial firms expediate their relocation plans; however, we’ve also seen management call for a ‘back to normal' work office lifestyle.
“Large businesses that have capital to spare are taking the opportunity to reconfigure floors, experimenting with different spaces; desks on one, social areas on another. This is expensive to implement, which is why it’s only being done by businesses that have the money to do it freely.
“We have seen strings of CEOs make statements about adopting a flexible working environment or wanting staff back in the office full time. The problem is everything is theoretical. Paternalistic employers should be listening to employees. There’s a gap between giving employees what they want and running a business effectively. With heightened interest in wellness over the past years, it’s a very difficult tightrope for businesses to tread to say, ‘I hear what you want but that doesn’t match up to what we want.”
James Neville, Allsop City Office Leasing Partner, Allsop
“One of the strangest things is having half the team in the office and half the team working from home. To remedy this, we are seeing office spaces regularly used a couple days a week, and then other days of the week, the office is vacant. As we entered the final stages of the roadmap out of lockdown, many more staff members were now utilising offices on a more regular basis.
“In the first quarter of 2021, we observed a significant increase in interest from individuals wanting to acquire office space, - averaging 36 viewings per week since Easter. This increase came from the professional services and tech industries looking to move into new build offices before their existing leases expire between 2021 and 2023.
“Likely to only increase due to urbanisation, adoption of regional office spaces is on the up of late. Places like Bristol are experiencing a significant uptake in office space, and the prices have increased for best-in-class stock. Certain office locations, particularly towns around the M25, are experiencing an increase of conversion of office space into residential space in recent years thank to a change in permitted development rights. As such, some towns are now experiencing a shortage in supply of office space.
“Across the board, landlords are pushing for office spaces to be Covid compliant and to adapt to recent changes. They want to attract staff to come from home to a ‘new home’. This includes Zoom booths, breakout areas, open space and town hall auditoriums. Landlords now view tenants more as partners rather than customers in an attempt to work more collaboratively on office spaces.
“It’ll be interesting to see how people react. There will be a huge psychological element to contend with in terms of people feeling safe, not only in the office, but also whilst travelling to the office. People will expect to have their own spaces that aren’t used by anyone else, regardless of how many days they choose to come to the office.”
Anusha Peries, Real Estate Advisor, Arbuthnot Latham
“I believe that offices are here to stay, albeit there will be a shift to a more flexible way of working. We have all had a taste of that previously elusive work-life balance, and realise that we can work just as well, if not better, from our remote working locations. However, the interaction we have with colleagues in the office is also a factor, so getting the balance right is important.
“We may start seeing more occupiers turning to locations away from city centres or increased take-up in flexible office spaces, closer to residential areas. One of the issues will be how the workforce commutes, if the local public transport infrastructure is inadequate, and car parking spaces are limited. Inadvertently, if there is a small shift away from city centres, this could help local high streets with greater demand for Food & Beverage outlets locally during the week, as more employees work from home.
“Internally, the fit-out of offices was already evolving in recent years, pre-pandemic, going from open plan floor plates, to having far more breakout and collaboration areas, which enhance creativity and allow for greater communication between workers. There is that adage that some of the best ideas arise from conversations by the water cooler, so having multiple dedicated spaces that allow for those free-flowing conversations can only be a good thing.”
How are you seeing lenders react to the office trends being adopted by businesses?
Mat Oakley, Director European Commercial Research, Savills
“This is a very different story compared to how lenders reacted when the 2008 financial crash happened, where credit tightened up. Despite the effects of the pandemic, businesses aren’t having issues obtaining money.
“Lenders aren’t standing in the way of businesses adapting to Covid, but they are cautious about lending to office developers. This might be a minor issue of contention when there is a query to borrow money for a purchase of an office building.
“Large buildings are likely to continue to be in demand going forward and could also be a way to entice employees back into the office. Lenders still need evidence of a return to the office to make them confident. This may take 2-6 months, but it’s not going to be as easy to obtain lending on purely new office spaces just yet.”
Ed Dunningham, Valuation Partner, Allsop
“Lenders across the board are being cautious, watching markets closely and taking comfort from the fact capital markets are holding up.
“There will be difficulties in the short to medium term as commercial tenants are moving around, changing how they operate. I can see that there are going to be some second-hand tenanted spaces that will be difficult to let.
“Commercial property is being placed into higher risk brackets by lenders. It is not that lenders do not want to lend; it is just that they are being cautious.”
Anusha Peries, Real estate advisor, Arbuthnot Latham
"Arbuthnot Latham continues to support clients who require funding for good quality office to residential based schemes where the asset is well located and there is proven demand for the completed product.
“The introduction of the Government’s Recovery Loan Scheme (RLS) allowed us to work with the British Business Bank to support our clients with funding facilities for those who are predominantly property investors, developers, house builders, and business owners."
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