Those on the ground in the commercial property market are not overly worried about the trend for home working but excited about accelerated evolution
Since the coronavirus pandemic shut down Britain in late March, much has been said and written about the future of the commercial property market, given the surge of home-working. What will happen to offices? Will organisations do away with their flashy city-centre headquarters? And could those buildings be evolved to become part-residential, part-commercial, part-retail in the coming months and years?
Current sentiment shows that most people are happy working from home. Many experts predict big changes in the commercial property market – which could be heavily impacted if already-delayed rents are not able to be honoured by struggling businesses. But some key figures within the space predict it will bounce back, and quicker than you might think.
“A recent survey of estate and lettings agents revealed that 85 per cent thought that a physical office was important and intended to go back once restrictions had been lifted,” notes Iain McKenzie, Chief Executive of The Guild of Property Professionals. “While the set up of commercial spaces might look different, many still see the importance of a physical office space.”
Enrico Sanna, Co-Founder and Chief Executive of Fora, is of a similar mindset. “I think the office market will recover as the supply of offices will adjust to the demand,” he says. “In London, before the crisis, vacancies were low, single-digit, and forecasted to be even tighter as new supply levels were not high. COVID-19 will take some of that tightness away but not huge amounts as some of the new supply will be further delayed or cancelled for good.”
Bouncing back – the need for office space
He believes when – rather than if – a vaccine for coronavirus is discovered, the commercial property market will go from strength to strength. “Once there are medical solutions to Covid-19 that safeguard people, we will be attracted again to being in an office with our colleagues,” Mr Sanna argues. “There is nothing like face-to-face interaction for creativity and productivity of a team, and this will be massively elevated when working together in a dynamic environment.
“I think working from home will be more prevalent, but it will not replace the office environment completely as it will still be a minor fraction of the overall time spent working. Additionally, space needs to be functionally supportive of the employees’ needs, something the home office does not always provide. Think about meeting a potential new client, presenting your new product, creating a new idea while using Zoom? I think in-person beats that any time of the day.”
Garry Treagust, Partner and Head of Commercial Group at English law firm Trethowans, agrees. “While there may be a reduction in office space requirements, human nature dictates that people like interacting with people so this trend should not be overdone,” he says. “The office landscape will change, and the lockdown is likely to increase future flexible home working plans for many office-based businesses. But the commercial property market is cyclical. Ultimately the market will recover – the question is when.”
Commercial property modifications required
Alex Gibbs, Co-Founder and Director of Built Asset Management, a leading co-living operator in London, is equally optimistic. “We are not predicting that the commercial property market will be impacted permanently,” he says. “Firstly, commercial property takes many forms; warehouses and manufacturing sites, for example, would likely be largely unaffected by an upward trend in home working.
“Regarding office space, we think that the more likely medium-to-long term response to the reported success and enjoyment of home working will be businesses giving a little more freedom and flexibility in terms of working hours and locations. This would not negate the need for office space; rather it would modify the way employees interact with it.”
The need for modification is a theme taken up by John Woodman, Senior Partner at Hollis, an independent real-estate consultancy. “A ‘new normal’ in the office sector, as companies adapt to more remote working, will have a huge impact on office design, typologies and even locations,” he says. “In the short term, co-working spaces and open plan office types are likely to be out of favour with firms looking to get back to work after the lockdown. Some companies may consider temporary or partial relocation out of cities to protect employees from densely populated areas.
“That said, the commercial property sector is very resilient, and some sectors have performed well during the pandemic, such as the industrial and logistics sectors. Sales and acquisitions of assets are still progressing across Europe, and investors are primed to invest further in the residential and commercial property sectors post-lockdown.”
Boost to evolution
Shaun Dawson, Head of Insights at DeVono Cresa, suggests that the commercial property industry “has not been caught entirely off-guard” as most firms had planned for short-term uncertainty during the Brexit phase. “Many businesses had already started using new forms of technology to connect virtually with clients,” he says.
“The commercial property market has evolved. The current crisis is giving that evolution a little bit of a boost. Not just how the commercial property professionals operate, but also the way in businesses view their real estate. In recent years, the growth of the flexible leasing market had somewhat moved the industry and product offering. The latest set of circumstances will hasten that further.”
Mr Dawson adds: “Some businesses may well decide not to operate with a fixed property, some will decide on less space, others may look to have more space but on different terms and locations. The pandemic and lockdown have opened up thinking around the opportunities and possibilities of working differently.”