Is the Office ready for recovery?Owen Mitchell
The debate surrounding the future of the office grabbed the UK headlines this week. Chancellor of the Exchequer, Rishi Sunak announced that young people will see their careers benefit by working in the office as part of a continuing push to persuade people to bid farewell to the home set-up, and embrace a return to the workplace.
Although restrictions were lifted on 19 July, the fact of the matter is employees have become used to remote working as the norm – what was once the exception is now the rule. Rents continue to be under pressure as a result, as businesses cautiously assess a shift back to office working.
At the start of the pandemic, many argued the office was dead, but since then the debate has become more rational, and the benefits of the office to enable collaboration, instil corporate culture and serve as a place where the less experienced can learn from more senior team members are well-recognised.
Yet, net effective rents have fallen considerably since the pandemic began as Covid has allowed occupiers to sidestep their rental obligations, whilst enabling them to demand rent-free incentives. The office is now increasingly rent-free, and the balance of power remains firmly in the hands of occupiers.
In the short-medium term this trend may continue and disruption from the fast-spreading Delta variant of Coronavirus will play a key role. However, in the longer-term occupational signs look encouraging. The balance of power will no doubt shift when high-quality space becomes increasingly sparse as a vast majority of the working population transition back to office working.
There is a consensus that the office will never be obsolete. However, landlords must acknowledge that occupiers’ expectations about the design of workspaces have fundamentally changed. The demand for flexible space had been growing for some time before the pandemic, and the shift to working from home has only accelerated this trend. According to new projections, flexible workspace could account for as much as a fifth of the UK office market by 2023. Landlords have had to respond with spaces which meet contemporary expectations and have spent large amounts of capital reimagining and converting traditional offices into more flexible space. These flexible spaces enable the office to morph into a strategic instrument deployed to create a community, foster collaboration and embed the culture within an organisation.
The retail industry continues to record impressive footfall figures following the lifting of restrictions, with a flurry of leasing activity and various occupiers announcing plans to expand their bricks and mortar estates. This week it was announced that Greggs plans to open around 100 new stores by the end of the year after a rebound in sales helped return the bakery retailer to profit, whilst HMV is also on the hunt for 10 new store locations nationwide. Travel restrictions are also beginning to lift, giving businesses confidence in the safety of returning to the workplace. By this logic, it looks likely that the office market will soon follow on the path to recovery.
However, the purpose of the office has unquestionably changed with many companies talking about a ‘hybrid’ future combining both remote work and office time. Nobody knows for certain what the office of 2022 will look like, but the gradual return over the coming months will no doubt shape its trajectory.