I yield to no one in my admiration for the office as a social centre, but it’s no place actually to get any work done.
– Katharine Whitehorn, View from a Column (1981)
The king is dead; long live the king. The dominance of centralised office space as the lynchpin of our working environment has changed and it has changed for good (or, at least, until it changes again). The last eight months of life with covid have shown us that we don’t need to sit in close proximity of all our colleagues to be productive. In fact, anecdotal comments during lockdown suggest the opposite: people are more productive outside the office as long as they are given the right tools, and space, to work at home. Witness the epigraph of this article; offices were never the best place to work.
Although, this evolution towards home-working or, eventually, a mix of remote working with ‘social space touchdown’ in smaller, maybe less central, locations has been developing for a number of years. Prior to covid, 20% of staff worked at home and the number has been gradually creeping up each year. All that covid has done is to accelerate the rate of change. What would have taken five to ten years to evolve has happened almost overnight. The pandemic was a catalyst and not a reactant. The change that we are experiencing was going to happen anyway.
Prior to covid, 20% of staff worked at home and the number has been gradually creeping up each year
So, what are the repercussions and the likely trends that will emerge? Well, as with all things, there is a lot of informed and not so well informed conjecture about the future of offices as a work environment and, more so, as a property investment. For the former, there are a wealth of really insightful reports from most of the big real estate consultants (CBRE, Cluttons, Colliers, Cushman & Wakefield, JLL, Knight Frank, Montagu Evans, Savills, etc.), all of which are downloadable for free at their respective websites.
For the latter, just google the words “the future of offices” and you will find a plethora of vox pop, lifestyle blogs and articles from every quarter that conform more to wish lists than to anything offering an economic understanding of supply, demand and behaviour. David Ricardo (the 1773-born English classical economist who first propounded the theory of economic rent, in Principles of Political Economy and Taxation) would turn in his grave if he knew how little we have learned about property markets in the last 200 years.
The future is balance
What will happen will not be the death of the office, as face-to-face meetings will endure; socialising and working closely with colleagues will continue and simply being somewhere other than home with all the distractions of family, pets and the fridge will be a necessity. Often commentators on the impact of home-working are pontificating from the luxury of their own home office, not realising that majority of home-working is being done in small kitchens and bedrooms that are not conducive to work at all.
This was summed up by Ben Cullen, Cushman & Wakefield’s head of lease transactions, in September 2020 when he said: “The good news for the offices sector is that the hysteria appears to be dying down. Business leaders that were calling time on the office now accept that they’ll continue to have an important role in future. … The future office must adapt to this change becoming a place where people want to be rather than a place where people are obliged to be.”
In other words, we will see an office market that adapts. Less space in more locations is a possibility, and that will lead to greater vacancy and lower rents. Capital values will fall in line with the lessening of demand and the need to redevelop or repurpose space will become the opportunity of the 2020s (mixed in with retrofitting for energy efficiency). Not necessarily good news for investors in offices but, with an increase in demand for more spacious residential property or mixed use, the downside might not be as great as feared.
Change is the norm and the speed
of change is the variable
Of course, the timing of this change will be covid dependant. I have always argued that the property market will adapt according to ‘cure, treatment or acceptance’. The news about efficient vaccines suggests that we could see a post-covid world similar to the one that we left in 2019, albeit with different demands and behaviours. But, even if the vaccine isn’t as efficacious as many hope, a post-covid world will eventually arrive. The speed of change will be dictated by that.
But there will also be some natural, contractual, brakes on the swiftness of change. Lease lengths, user restrictions, dangers of enfranchisement will all play their part in delaying some projects and may, in the interim, lead to a less intensive use of office space with more social facilities or, in the image of Google and Yahoo, breakout spaces. In other words, change is the norm and the speed of change is the variable.
But the key to all of this is balance. Offices will be used less, but not so little that they will die. Home-working or hub-working will sit side by side with days at the office or off-site meeting points. Zoom will be part of the world of communication, alongside the telephone, emails, letters and face-to-face meetings. If you will pardon the pun, what will work will work. And the provision of space will follow these requirements. As Ricardo said, property (land) is just a factor of production. The next decade will be a period of change, an opportunity to embrace different needs and uses. This is not the death of offices, it is just a change in their role.
