With the UK emerging from COVID-19 restrictions, there’s inevitably lots of talk about what the return to the office will look like. Will we see more businesses deciding not to renew leases and downsizing office space? What does that mean for the office market?
In the fourth blog post in our ‘Private assets: Expert series’, we caught up with Andy Pyle and Sarah Hayes, both Partners in our Real Estate team, and Mel Newton, a Partner in our People Consulting team, to get their views on what we can expect for the future of the office.
Andy, Sarah, Mel, thanks for joining us. Let’s go straight in with the big question: what is the future of the office?
Andy: If we’re talking about the future of the office, we need to recognise that we’re talking about the future of work. What’s going to happen in the office will depend on decisions companies make about how they want to organise work. For most organisations, the immediate challenge is to get people who are working from home back into the office. That’s a large-scale endeavour in itself. But it’s made even more complex by the fact that there is now a greater expectation of being able to work more flexibly, and an appetite amongst many organisations for adopting hybrid working models.
Mel: There was already a trend towards more flexible working even before COVID. Then, during lockdown we were forced to move to remote working. Now we’re moving back to a position where organisations and individuals have choice. And the vast majority of organisations I talk to are saying they want to give their people some level of flexibility.
Sarah: We need to keep in mind the war for talent. There are a small number of companies with strong brands who may be able to attract the top talent without offering some form of flexible working. Most need to look at what their people want.
Mel: Absolutely, organisations that don’t offer some form of hybrid working are likely going to need something different to attract the best talent. That could be their brand. Or they could offer higher salaries to get people into the office.
What is hybrid working going to look like?
Sarah: Most organisations aren’t that far through working out what the hybrid model will look like. Nobody really knows what will work and what won’t work, so it’s vital to model the potential scenarios and think through all the things you need to plan for. You need to accept that you can’t be sure something will work out – and be quick to adjust if it doesn’t.
Mel: Essentially, you can have a structured model – where people have fixed days in and out of the office – or a totally flexible approach, where it’s up to team or individual discretion. But, as Sarah said, there’s no off-the-shelf answer here.
There are some key things you need to think about when determining your approach. The first is your workforce. What type of work are they doing? How do you meet the skills requirements? You need to build your workforce strategy around the type of work you do and how you do it. Then, you need to consider your physical footprint. What should the layout of your office look like? Do you still need your offices in the city centre? Where are your people happier?
The key thing here is that you can’t just wonder into a flexible future, it won’t work. You need to think through the implications and risks – and make sure you have the right digital tools in place.
What does that mean for the office?
Andy: Let’s be clear, the office isn’t dead. There are vital activities that the office enables – what I refer to as the four ‘Cs’: creativity, collaboration, culture, and coaching. What’s inside those offices and what they look like will change though.
Mel: We’re moving away from a physical workspace where there are banks of desks. It’s more about how you create meeting spaces where people can ideate and collaborate. And, of course, there’s a lot of thought that needs to go into how you engage those people in the physical environment and those working remotely in an equal and fairway. Do you always have all-team meetings on Teams?
Sarah: It’s really important that you don’t disenfranchise anyone – not everyone can work from home. Their role might not enable it. And some staff might not have an environment at home that’s conducive to work.
Mel: We might see more shared office-type solutions on the high street for employees who don’t want to commute to HQ but who can’t work from home. Will organisations subsidise this space? It could be a great upside for the high street and support levelling up.
So, what are your predictions for the office market?
Mel: There’ll be a lot less people in the office, with people working say three to four days a fortnight there. That’ll mean a lot less need for physical space and we’ll see more businesses deciding not to extend their leases on buildings.
Sarah: The exiting of leases isn’t necessarily a good bellwether for the office market though. In the current situation, there are very few people in the office and you know that you’re going to need to redesign for a hybrid world, but it’s not quite clear yet what that world looks like. It’s a pragmatic approach not to renew and pick up later with a landlord who’ll help you fit out your office when you have more certainty around the needs of hybrid working, but an organisation’s ability to do this will depend on their size and nimbleness.
Andy: We will see a downward pressure on office space. But there are some strong mitigating factors here. It goes back to my four Cs . Companies will still need collaborative spaces – meeting rooms and hubs – where they can be creative, coach their talent, and drive an innovative culture.
Sarah: It’s worth noting here that office occupancy won’t be even. There’s often a degree of magnetism around being in the office on certain days of the week. So you won’t be able to free up as much space as you might think. People might only come in two to three days, but they could well be the same days. That means nothing changes in terms of office space needed unless you put strict rules in place. Not every organisation will want to force that on their people.
Andy: Some market participants have suggested that we’ll see office space reduce by as much as half. I think it’s going to be more like a fifth to a quarter in practice. But some locations will be hit harder.
Sarah: Today, we’re very busy supporting clients buying prime offices in and around the City. The long-term view is that there’s a future for the office and the market is very competitive. Asset selection is key though, and buyers are looking carefully at the location and the quality of the building. Does it tick the ESG boxes? Can you get to it easily? Is it in an area where people want to spend time? Does it make the commute worthwhile for employees?
Andy: Customer service has become such an important differentiator – today’s best-in-class landlords are thinking about what solutions they can provide to improve the customer experience of their buildings, and I think that the Space-as-a-Service trend will become the norm as real estate evolves into more of a business to consumer proposition. Particularly as we get better at gathering and responding to real-time data insights on buildings and their usage.
Sarah: Flexibility is now a key requirement. On the demand side, we’ve seen a range of corporate occupiers look to flexible office providers to give them the option to scale up or down as required, or to access on-demand meeting and event space rather than having these as a core part of their property portfolio. On the supply side, we are also seeing investors looking at floor plates to understand the ease and extent of flexibility in the assets they are considering, as there is a value that can be tapped.
Andy: There’s definitely been a blending of traditional and flexible offerings. I think there’s going be a hesitancy to sign up to the long leases we’ve been used to in the past without some changes to the service offering. Ultimately, there will continue to be a need and demand for office space. It still makes good commercial sense to invest in high-quality, well-located offices that will offer the type of space that businesses need to support their future ways of working. But it’s equally important to invest in improving the customer experience as well.