There has been a huge debate around the “Death of the Office” since the initial lockdown and while we are still uncertain about how all this may look, patterns are emerging which point to a reconfiguration of how we traditionally use office space.
While the office sector is going through a torrid period at the moment I feel that we are in the midst of what is a ‘coiled spring’ effect meaning that when we get back to some form of normality there will ultimately be a surge of demand for flexible office space, as employees grow tired of working from home and companies choosing to adopt a hybrid model of office space and remote working.
The reasons for employees wanting to go back to the office can be attributed to:
1. Mental Health/ Wellbeing
2. Productivity/ Corporate Culture
3. Wages/ Location
Mental Health/ Wellbeing
In our ‘Death of the Office or Evolution of the Office’ blog post back in June, I said that humans “by their very nature are social beings that rely on interactions and building relationships to survive” and for a while during the months of April – August, there seemed to be a seismic shift in the industry with employees experiencing a freedom and a real reprieve from the “rat race” by eliminating their commutes and working from home. The weather during April – August were some of the sunniest months on record which also contributed to some of the working from home feel-good factor as people were able to shut down their laptops at a reasonable hour and make the most of the sunny weather in their gardens, exercising in parks etc and in the latter months enjoying beer gardens again and the Eat Out to Help Out scheme.
This now seems to be a false picture, because we were basing this new trend of working from home on just the summer months and not the full yearly cycle. With Lockdown 2 coming into effect from today (05th November 2020) combined with the colder weather, less hours of sunlight and less social interaction unfortunately we will now begin to see the true impact it is starting to have on peoples mental health, physical health and wellbeing.
Productivity/ Corporate Culture
Without face-to-face engagement, and those casual meetings around the coffee machine, the ‘flow’ of ideas that makes things work are harder to replicate as people are now starting to realise that while the digital world of Zoom, Microsoft Teams and Skype have their merits, they are no substitute for face-to-face meetings. Sometimes you can cover more topics and share more collaborative ideas in a five minute chat by the coffee machine than you can on a 30 minute Zoom call with a dodgy internet connection.
While the global pandemic has proved that some elements of remote working are successful, in many cases employees have relied on strong existing relationships to keep businesses operating. With trust and rapport harder to create virtually, particularly for employees that are brand new to companies or for those starting out in their careers, companies risk an erosion of corporate culture as it has become increasingly more difficult for companies to connect their workforce to each other, harness a company culture and create a sense of community.
Wages/ Location
While I am not claiming it is a civic duty for people to go back to the office, there must be a self-awareness among employees that if you are able to work from home 100% of the time and do not need to be in a specific location to do your job (i.e. London) then unless you offer a unique skillset that cannot be found elsewhere it could make more economic sense for employers to outsource this work, whether that is nationally or internationally.
If you are an employer paying an employee a “London Salary” (based on the need to be London based pre-COVID) and the employee now wants to work from home 100% of the time with no requirement to ever be in an office, then (unless the job is field based) theoretically, for future hires it would make economic sense to hire a similarly skilled candidate in say Glasgow, Liverpool or Newcastle for a lower salary instead as the cost of living is lower in these locations compared to say London.
So what will the future of the office look like?
Cities are currently experiencing what can only be described as a “Doughnut Effect”, with city centres experiencing reduced footfall, office occupancy and passenger numbers on public transport. On the other hand, the suburbs and satellite towns – which for example include the likes of Clapham, Kingston, Richmond and Islington in London and in Manchester locations such as Chorlton, Altrincham and Didsbury – have been incredibly busy and buoyant as people have tended to stay and shop locally.
The future of how the office sector adapts to these changes will be driven by the following areas:
1. Flexibility;
2. Hub and Spoke;
3. New Concepts/ Collaboration;
4. Amenities
Flexibility
Given the uncertain economic times, flexibility has become vital for businesses. 5 year plans have become 18 month plans as companies try to navigate through the choppy waters of the pandemic and the difficult economic conditions.
Flexible leases offer exactly that delivering a turn-key solution with shorter licence agreements, fewer T&Cs and all-inclusive rents which provide greater certainty for businesses in terms of cashflow and greater room for manoeuvrability should market conditions change again. Most flexible office providers also offer occupiers the freedom of movement within their centres and typically provide the ability to upscale at short notice.
A new trend that is beginning to emerge within the coworking sector is a day pass which offers the ultimate flexibility as occupiers and companies can just drop-in to locations as they need to and make use of the building amenities and facilities (and the free coffees!).
With flexible working here to stay, we are starting to see larger occupiers with say 100 staff take a 40-50 person office that comes with 100 building access passes, delivering a flexible and cost-effective solution.
Hub and Spoke
In the world of commercial property, the “Hub and Spoke” model will gain momentum as a more flexible workspace strategy and working style. Historically and even up until recently (pre-COVID) companies adopted the traditional head office model, – in which a company operates from a single, larger city centre head office – the ‘Hub and Spoke’ concept enables employees to work from either their city ‘hub’ or a strategic spoke location, which would include more regional workspaces.
With the right flex space operator, “Hub and Spoke” offices will allow employees and businesses to work within a broader business centre network and provide companies with more freedom compared to traditional long-term leases. An example of this is the Regus and subsidiary Spaces, where occupiers with certain types of membership are able to use business lounges at all Spaces locations.
In practice this could mean a company with a head office in London choosing to downsize their city centre presence and open up satellite offices in surrounding areas such as Reigate, Richmond or Guildford. Equally for companies with a main office in Manchester, this may mean the same and opting for satellite offices in locations such as Didsbury, Rochdale, Stockport or Warrington.
New Concepts/ Collaboration
As traditional office occupiers begin to terminate leases and exercise break clauses, landlords are starting to find and forecast that the void rates across their office portfolio will increase and in turn face having a number of units/ buildings which will need to be either repurposed or repositioned. Having spoken with a number of traditional office landlords, it seems that most are trying to understand the flexible workspace market (economics, amenities, operators) and assess how they can get into this market, while maintaining existing capital values (or mitigating future losses) and minimising void periods.
One potential way of repositioning the asset is by collaborating with an existing operator by way of a joint venture or management agreement. While the likes of Orega and Citibase have worked in collaboration with landlords across the UK for decades we have now started to see new collaborations such as Knight Frank partnering up with Work.Life to roll out a managed workspace solution.
Another way is for the landlords themselves to offer different managed solutions that cater to different ends of the market. For example British Land have launched and rolled out their flexible workspace offering Storey across a number of locations, Bruntwood have created Bruntwood Works and LandSec have started to do the same with the creation of MYO, all of which tap into the flexible workspace sector while the parent company retains an element of traditional office space too.
As the Life Sciences sector begins to emerge and grow, we could see a number of office buildings in strategic locations (close to universities and research facilities) converted into lab space, with flexspace type operators emerging in the Life Sciences industry.
Longer term, we could start to see collaboration between residential developers and workspace operators, with new residential schemes potentially having an element of workspace for residents so that there are clear boundaries between work life and home life, while eliminating daily commuting times.
There could even be potential to incorporate into flexible workspace offerings into coffee shops, bars or hotels. Starbucks have recently trialled a new concept in Japan which offers reserved booths and meeting rooms. You can certainly see a concept like this working in the UK in satellite towns.
No doubt there will be additional collaborative relationships formed between office landlords/ investors and operators as a potential solution to filling vacant space.
Amenities/ Value Add Services
City Centre offices will still be in demand but will need act as a hub and offer amenities that give people a reason to go back into the office. Being COVID secure will be a pre-requisite. Depending on the company and the individual these amenities can include podcast booths, presentation/ screening rooms, wellness facilities, event space, break-out areas, on-site coffee shops, yoga classes, business coaching/mentoring, social events, gyms etc.
Summary
Are we seeing the “Death of the Office”? The office as we knew it, yes. The office sector in its entirety, not at all.
The Monday – Friday 9-5 in one office location will be a rarity for the foreseeable future. But a hybrid working model incorporating elements of flexible working patterns (8am – 4pm, 9am – 5pm, 10am – 6pm), working from home, centralised working and local working is here to stay.