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The end of office? Don't count on it

Lower costs and happier employees – the future is homeworking, right? Not so fast, says Gerald Eve’s Guy Freeman – reports of the death of the office have been much exaggerated.

Flick through the business pages of the newspapers and every day seems to bring a story about the latest major corporation seeking to reduce its office footprint. BT, HSBC, Lloyds, BP, Centrica – all of them have outlined plans to reassess their requirements, citing cost savings and evidence from the past year that homeworking is both as effective as office life and demanded by employees. The message is overwhelming: the office era is drawing to a close.

Or is it? Look beyond the headlines and the picture is far more nuanced. BP announced that 25,000 staff worldwide will be expected to work from home for two days per week, but dig a little deeper and it transpires this applies to less than half its UK employees. Moreover, the shift is to be case-by-case rather than wholesale, and some employees will work from the office more if they wish. Goldman Sachs has gone even further, calling homeworking “an aberration” that will be reversed as soon as possible, while Barclays described it as “a short-term measure that is not sustainable”. Similarly, flexible workspace provider IWG’s claims of rising demand points to a future where offices are very much part of the picture.

Could it be that companies are seeing efficiencies that aren’t actually there? Much has been made of the benefits of working from home, but it is notable the case has often been made by those in management positions – with the large houses, home offices and established professional networks that implies. Not much has been heard from those in their 20s and 30s, working around a kitchen table with their three flatmates or from the same desk at parental homes where they revised for GCSEs.

What’s more, it seems the cost savings from homeworking are not absolute, but merely shift the burden from employers to employees. A recent paper from Harvard University shows that those working from home spent between 7% (if they rent) and 9% (if they own) more of their incomes on housing costs compared to those that commute. This is especially detrimental to lower earners and, once again, those relatively early on in their careers.

There are further disadvantages. Homeworking has been successful during the pandemic in part because job migration has been low – people started working from home knowing their role and the colleagues they deal with. Onboarding and training employees remotely has not been tested, and there are understandable concerns that this could be made to work. Collaboration and innovation are amorphous concepts at best, but those businesses that rely on the creative spark of teamwork face the prospect of reduced productivity. Wellbeing seems to have taken a hit, although the full effects are hard to distil from the wider pandemic. Younger workers need in-person interaction to learn and to build their personal networks (and, to be frank, to enjoy after work socialising).


Offices of the future

There will, however, be significant changes. The proportion of time the average worker spends at home seems set to increase, with demand for this driven by older demographics. ‘Presenteeism’ will fall, and the number of desks a firm needs will reduce in parallel. Workplaces will better reflect this changing need, with a focus on space that fosters innovation and collaboration. The shape of the office will reflect ‘we space’ rather than ‘me space’ with a greater proportion of the current and future office being set aside for collaboration on projects through increased break out areas rather than individual offices.

Offices of the future will be more engaging and interesting than ever before, with a sense of belonging. There will be an increased focus on wellbeing and health, and sustainability credentials will become increasingly important. Location will be even higher up the list of priorities with proximity to mainline transport hubs key. Much of this change will be driven by the demands of younger workers; the office will be a key tool in the battle for talent.


Investment implications

The market will polarise – between high-quality space in prime locations and low-quality offices in secondary positions – prompting significant capital investment into those properties that fall short of what is required. Leases will get shorter, but this may be offset by higher rents when the space merits it. Some companies may shift towards a “hub and spoke” model in the south east, increasing demand for regional office space, but this too will need to be of high quality, reflecting changing needs.

Successful landlords and investors will be those that recognise the shifts that are taking place, and are both willing and able to shoulder the upfront capital costs needed to satisfy the new demand. Legacy leases will provide some cover to the sector over the medium term, but this is little more than a delay to the inevitable.

Reports of the death of the office have been much exaggerated, a story often promoted by those that have the most to gain. But change is coming, and to ignore it risks creating a self-fulfilling prophecy. People will still need – and want – an office to work from, but it will have to offer them something that the kitchen table doesn’t

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Guy Freeman