The Impact of Remote Working on the Commercial Property Market
As lockdown restrictions ease and face-to-face activities resume with caution, many business leaders are turning the keys in the office doors for the first time since the pandemic began. Yet, for others, the so-called “new normal” of 2020 has served to prove that remote work is possible and isn’t the blow to productivity that many suspected it would be.
A combination of economic pressures brought on by the pandemic and capability of the digital infrastructures we rely on has made remote working a no-brainer for those looking to cut costs. In a recent Gartner survey, over two-thirds (74%) of CFOs said they planned to permanently shift employees to remote work after the Covid-19 crisis ends. Some have already made the change, with Big Tech companies leading the way. In May 2020, Twitter CEO Jack Dorsey told employees that they could work from home indefinitely. Brynn Harrington, who is Facebook’s vice president of People Growth, says some workers have been “really thriving” at home and will be keen to continue doing so.
Of course, not all companies will adopt the same mentality. Goldman Sachs boss David Solomon has rejected remote working as a “new normal” and labelled it an “aberration” instead, while Jes Staley, chief executive of Barclays bank, said working from home was “not sustainable.” Nevertheless, it’s clear that working from home (or simply WFH) is no longer just an employee perk offered by select firms.
Inevitably, this poses a considerable problem for commercial property landlords who are now in competition with the home. Many have already sought to enhance their offering to remain relevant, but whether it’s enough to keep every commercial tenant committed to bricks and mortar offices is yet to be seen.
The drawbacks of the new normal
While home working has proven frictionless for some, the reality is that not everyone has the luxury of a home office or a space away from family to work productively. Some of those living on their own have struggled with the isolation, while those sharing accommodation with others have not been fortunate enough to have a quiet space to focus. Newcomers to companies have undoubtedly missed out on the face-to-face engagement that helps employees settle in, and those undergoing professional development will have suffered from a lack of in-person training.
Then there’s the question of internet connections, and the fact that not all employees will be privileged enough to afford a speedy broadband connection that allows for seamless homeworking. While some companies may seek to add WFH-essentials as a perk, a strict home-working policy is unlikely to be adopted by any company. After all, it’s not as if Facebook or Twitter are binning off their offices entirely.
As such, the use of the office will continue – albeit differently.
The future is flexible
Across the UK, businesses of all sizes have had to make tough business decisions during this downturn – and many are seriously revaluating their future needs for how much and what type of office they want to occupy. Rent payments remains a considerable overhead for most business and is usually the second largest outgoing after staff wages.
It isn’t surprising that some may seek to downsize, making home-working the standard while retaining the possibility of physical premises for those employees who rely on a workplace to do their job. This trend is already visible from the data uncovered in the office take-up figures in Central London for Q2 2020, which reached which reached 1.2m sqft, indicating a drop by 61% compared to the figures from the previous year and also well below the long-term average of 3.2m sqft.
Ultimately, the need for agility and adaptable solutions suggests that flexible working options are likely to see a surge in demand from commercial tenants. If they are to attract and retain occupiers, landlords will need to ensure a frictionless experience for their tenants.
Does that mean a loss of income for landlords in the form of lower rent? Not necessarily.
The best of both worlds
In 2021 and beyond, commercial landlords need to find ways in which they can support their tenants and embrace disruption in the process. A growing body of research points towards tech adoption as an essential component in the commercial property sector as a means of enhancing their offering.
Some may already be refurbishing their space and working to transform offices into tech-enabled spaces that their tenants want to use. Office owners will be under pressure not to reduce rent but to make the cost of renting the space justifiable by focusing on the “tenant experience” as opposed to simply leasing a floor of a building for the company to sit in between 9-5.
Working from home will inevitably become more widespread as it already has during the pandemic. At 360 Law Services, we have long supported flexible working – in fact, putting less resource towards commercial property has enabled us to focus spend in areas that we feel would truly benefit our clients such as high-calibre lawyers and innovative technology. However, that isn’t to say we don’t recognise the need for physical premises at all.
It’s just that, for the most part, workspaces haven’t necessarily evolved alongside advances in technology. For that reason, creating an environment where workers can seamlessly and securely will be non-negotiable. Data from Optimity supports this, with 79 percent of tenants saying they would sign a longer lease in a building with superior connectivity. By taking advantage of Internet of Things (IoT) technology, you can create smart environments that link all the technology and the people in the office together.
Meanwhile, even the cash-rich occupiers of commercial premises are leaning towards ‘as-a-service’ pricing models in their investments, further solidifying the need for flexible terms. Yes, remote working is undoubtedly set to continue growing in popularity, but commercial property investors should take this opportunity as a chance to increase revenue, retain tenants and position their premises as tech-enabled spaces that encourage innovation and smart working. As always, those who evolve in the face of economic downturn will be those who survive and thrive in a post-pandemic market.
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