Analysis: As working from home is embraced, will there still be demand for London office space?

Joanna Bourke
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The Covid-19 lockdown has forced a number of businesses to adapt to, and embrace, a working from home model. That could have implications for future office demand in London, as companies look at rents and whether they still want and need headquarters in the capital.

The Evening Standard spoke to property experts about what demand for London offices might look like as the lockdown eases.

Why firms might want people working from home

For employers, office costs can be high, so any opportunity to cut rents is likely to please bosses. But stripping out any obvious cost benefits, companies will also be examining whether working from home has been productive and if staff have enjoyed it.

A number of firms have praised how employees have been able to use tech at home over the last two months to do their jobs, while Zoom video chats have enabled numerous colleagues to have virtual meetings.

A recent survey from property agent Cushman & Wakefield analysed responses from more than 40,000 individuals globally about their work-from-home experiences during the Covid-19 pandemic. Survey respondents represent approximately 30 companies across nearly 20 industries.

Three quarters of respondents agree or strongly agree that they are collaborating effectively with colleagues in the current environment – up 10% from data gathered during the pre-Covid-19 period – and 73% said they would like their companies to embrace long-term or permanent flexible working policies.

Many businesses may hear similar feedback: that staff don’t want to be in the office full-time and would prefer to work from home for all, or part of, the week.

Andy Pyle, UK head of real estate at KPMG, said: “There is no doubt that Covid-19 has prompted businesses to look closely at their real estate, including office space usage in premium locations like London. After all, the prolonged lockdown measures have meant that large parts of the workforce are now operating remotely, leaving offices unoccupied despite the ongoing cost tied to them.”

What is the appeal of having an office?

While KPMG’s Pyle thinks demand for office space will contract as businesses look to reshape where people are based, he points out that companies still want a physical base.

Pyle said: “The lockdown period has certainly tested business agility, and while this shift will have indirectly acted as a test case for more agile working arrangements going forwards, there will still be demand for office space when the current social distancing restrictions ease further. There is still a very valid business case for the need and desire to gather in person to collaborate, for example. What’s more, not all job roles can be conducted remotely.”

Other property experts point out that for many businesses having a impressive office is important for hosting meetings with clients.

Meanwhile, not everyone has found working from home easy. James Forster, a central London tenant representation expert at property agent BNP Paribas Real Estate, said: “In densely populated cities such as London, many are struggling with juggling work and life in small living spaces. Homes are often shared with others and are not necessarily suitable for homeworking. With lack of space, many will therefore welcome the return to the office.”

On top of that, many people that do work in the capital want to be near a wide selection of bars, restaurants, shops and gyms. Companies have long looked at having headquarters in locations that appeal to employees.

What will happen to office demand?

Andrew Barnes, head of central London tenant representation at property agent JLL, said: “Despite the vast majority of London tenants working from home, with considerable success and efficiency in most cases, we do not see demand for London offices falling away dramatically.”

Barnes added: “The role of the office may evolve slightly and become more of a meeting point and customer meeting hub than a place where the vast majority of employees have to come every day. Various surveys are emerging where a large proportion of employees (up to circa 70% typically) are looking forward to a return to the office, albeit with more flexible working arrangements during their typical week.”

Property developer Landsec’s chief executive Mark Allan recently pointed out that some companies will be on the hunt for more or new space to adapt to any new workplace guidelines.

Allan told the Evening Standard in May: “Even though most people are working from home at the moment, we don’t think this will result in the death of the office. As the Government encourages companies to avoid hot-desking when they return to work, some employers will be seeking offices that offer wider space for social distancing and people to have their own dedicated desks.”

Chris Grigg, the boss of landlord British Land also recently discussed the offices market. He said: “Plenty of people are looking past the next 12 and 24 months, realising they want to have the best offices in the best locations to attract talent.”

He said businesses are aware there is a shortage of new office space being developed for the coming years, and many want to sign up now to secure modern space.

Are leasing deals still happening?

Last month London property developer Great Portland Estates said it had agreed a West End pre-let office deal for nearly 40,000 square feet of space with Exane BNP Paribas. It will be the headquarters for the Exane BNP Paribas Cash Equities business.

GPE’s chief executive Toby Courtauld said the deal at 1 Newman Street and 70/88 Oxford Street “is testament to the resilience of the central London office market and the quality of this scheme”.

As the lockdown lifts, landlords will be watching carefully to see how occupier demand for offices has changed since the outbreak drastically changed the way people have been working.

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