Analysis: More than bricks and mortar

For many months of 2020 office life in the UK stopped completely for most people who previously commuted into company buildings to sit at company-owned desks. Staff quickly became used to working from home with Zoom and Team calls replacing formal meetings and informal catch-ups.

Many people have suffered from not having enough space to work, particularly the younger generation in shared accommodation. For others though working from home has been a revelation. It has inevitably led to questions about which changes will become permanent and how city centre financial districts will be altered in a post-Covid-19 world.

Zurich has already started looking at what comes next and began by asking its staff for their preferences.

North of 70% of its 4500 UK employees said they saw homeworking for a percentage of each week as part of their future.

Property portfolio

According to John Keppel, chief operating officer of Zurich UK, while this has always been an option the insurer did not see “huge take-up pre-Covid”.

“A lot of light bulbs have come on with people, what they thought was practically impossible or difficult they now realise is quite convenient,” he tells Post.

The insurer has started to look at its property portfolio, examining how much space is given over to what Keppel terms individual contribution – people working at their desks – versus collaborative space.

It has begun with the premise of questioning and testing what would happen if it turned the traditional 80%-20% split of desks to shared space on its head.

“We can now see a future where a lot more individual contribution days will be from home offices and we will set up our work places to be much more effective collaboration sites,” says Keppel.

The knock-on effect could be the amount of floor space needed falling by 20% to 40% with the remainder being reconfigured.

While certain sites may not lend themselves to this approach Keppel believes that it would be “broadly consistent” across London and other regional centres.

“We will be able to shrink it from where it was before,” he confirms.

This is not to say that offices will be shut. The general sentiment is that productivity, especially in insurance, has at the very least held up well since March but some roles naturally lend themselves to a shared environment.

For instance on projects, “there is no replacement for having people in rooms”, says Keppel. “Technology is wonderful and collaboration by Teams or telephone-only scenarios is adequate but it is not the same.”

Similarly, Simon McGinn, general manager for commercial and personal at Allianz UK, sees the insurer’s countrywide network of offices being maintained.

“Our strategy won’t change in terms of putting ourselves where are brokers are,” he sums up. “We will continue to be in our city centres and operating in a way that we are able to meet with our brokers when it is needed.”

A global survey by KPMG found that 69% of CEOs believe their firms will be downsizing their office space as they rethink the way they work and communicate. The simple equation is that fewer staff in situ and less floor space demand spells trouble for the property sector.

The specialists though remain incredibly upbeat. While real estate has a natural defence of long-term leases meaning there is unlikely to be a short-term crisis the positivity is far beyond what might have been expected.

Angus Goswell, co-chairman of the London offices team within real estate consultancy Knight Frank, is adamant that opportunities abound.

What Covid has done is accelerate trends that were already there, he argues, saying that people need to understand the difference between home and agile-working.

The return to work index from Huq Industries

Reducing office headcount

The former would reduce office headcount and the need for space but is more in tune with process driven jobs which in the main have already been moved out of expensive locations including London. The latter is not new but will increase.

“A lot of organisations have already gone down the hot desking route,” Goswell continues adding often this meant firms ended up needing more space than before with breakout areas and quiet zones. Developing this further will take 10 to 15 years, he believes.

“Office space in the short term will be impacted more by economic influences [than Covid-19],” says Goswell.

However, Aurélien Collignon, an associate director at sustainable investment platform Fore Partnership, believes that if half of the people who are working remotely currently do not wish to return to the office then financial centres will be in trouble.

“These areas we believe will be far more impacted because the type of employees working in financial districts are the most mobile,” Collignon states.

Local authorities, councils, developers, investment managers and occupiers need to get their heads together to rethink the districts, he says.

“How can we offer these employees something they don’t have at home,” needs to be the starting question he says.

What financial hubs have in their favour is they act as magnets for collaboration, Collignon sets out, and the best mindset is seeing Covid as an opportunity.

In his view, just as previous crises like the cholera outbreaks in the 19th century led to modern sanitation, so the current one will lead to a revolution of improvements particularly for health and wellbeing in office life.

“It is going to accelerate something that developers and investors have been talking about for a long time. We were playing around a little bit at the edges but were not really doing anything differently,” Collignon sums up.

Productivity, he says, will be enhanced by spaces that give people the chance to see craftmanship and raw materials.

“We are super excited, we have been pounding the table and talking about all of these things for the best part of seven to eight years,” he wraps up.

Another who sees opportunities for investing in office space is Stephen Lewis, managing director of HFD property group, the development division of HFD Group, a full service property company.

Its business is predominantly based in Scotland with a substantial amount in Glasgow.

The short-term decrease in demand for space will vary from business to business but he forecasts it being anywhere between 5% and 25% of total space. There won’t be as “fundamental a change to the property market as some people have suggested” and longer term the market will “snap back to where we were before”, he states.

The structure of future demand though is up for debate.

“The reality is that corporates still want the big, large, open plan floorspace, it is the most efficient and you can repurpose it and change more readily over time,” says Lewis.

This gives them flexibility on how to set up the space, but another layer of agility is in demand.

HFD has been behind a major development on Bothwell Street in Glasgow half of which has been pre-let to Virgin Money as its new headquarters. Some 25% of the building though is being kept for serviced office space.

“The hybrid model allows business to grow and reduce over time,” he recounts. “We see that hybrid model being rolled out across all our new developments.”

In short, a flexible licence for 10,000 square feet sits alongside a long-term lease for a whole floor.

Another advocate of serviced offices is Eugene Tavyev, founder and CEO of marketplace Spacepool.

The search platform is like an Airbnb that allows people to find flexible short or long-term office lets.

Tavyev forecasts the pandemic leading to more decentralisation and a hub and spoke model. “People will seek options where they will be able to work from hubs and flexible offices instead of travelling two hours just to get to work,” says Tavyev.

While city centre offices and HQs will not disappear there will be more locations of flexible offices for teams to work in. He denies working from home will pick up all the capacity.

“You can exercise outside on your own but there is a reason you go to the gym,” he says. “It is an evolution of the office space, the way we work.”

Keppel appears to agree. The insurer experimented two years ago when it closed a legacy building in Cheltenham and switched to a small drop-in centre with around 30 desks.

“That is something that we are now looking to utilise in other locations as well,” explains Keppel. “We will see a use of these kinds of more flexible spaces.”

Changing, not disappearing

Which leaves one crucial point to return to. It backs up the optimism of the aforementioned development and investor specialists that office life is going to change rather than disappear.

As already noted, the impact of the pandemic has not been consistent for everyone and concerns about the impact on mental health have been prominent throughout the crisis.

Some people will need persuading about the effort of making the commute, but for others – many because they have missed the camaraderie of office life – it is something they are keen to pick up again.

After lockdown eased, when the government was encouraging people back to the office, occupancy levels went up (see box, above). While the government has since u-turned to try and change this, the initial return still shows an important sentiment. People had a desire to get back to the office.

There is no doubt then that the high value of meeting people and the relationships that can be built from office life, not to mention the ability to train existing staff and new joiners, are key features that will ensure its survival.

“I suspect the default option will be that most people will return to the office,” Goswell concludes. 

Key stats for the City