Britain’s changing property landscape

As people have got used to working from home and demonstrated their ability to still do their jobs, the outlook for expensive offices in major conurbations is changing.

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  1. Garry White

Boris Johnson has reiterated his view that Britons should get back to the office, as he set out a road map to recovery. He reinforced the statement made by Bank of England Governor Andrew Bailey earlier this week that people need to get back to the city centres to prevent the UK being in a recession ‘for a very long time.’ However, this is all likely just wishful thinking.

Britain’s working practices are undergoing a permanent, seismic shift and this will change the country’s property market permanently. The Covid-19 situation has accelerated the negative trend that was already in place in retail property, but has also presented landlords with a new, potentially painful trend. Demand for office space in prime locations is now likely to fall, perhaps significantly. 

Companies have been attracted to large centralised conurbations because highly-developed transport infrastructure can bring workers from a wide catchment area, allowing them access to the best pool of talent possible. This has created pockets of very high land values, such as seen in the City of London, and led to the centralisation of much of the UK’s business activity in the capital.

However, lockdown has resulted in most staff employed by Britain’s major corporations switching to working from home. IT departments had to rapidly update their systems and security protocols to allow businesses to continue to operate with minimal disruption to customers and clients. Given the circumstances, this has been a successful transition. It has lowered resistance to working at home at managerial levels – and it could cut costs in a financially-challenging time.

People have adapted

People have also seen significant benefits to their wellbeing by removing commuting for their daily routine. A survey of British company founders and managers by UK start-up network Founders Forum for the World Economic Forum (WEF). Prior to pandemic-related lockdowns, 94% of those surveyed had worked from an external office. Despite their brick-and-mortar setup, more than 90% were able to accomplish the majority of their work remotely. The conclusion based on the responses was that a realistic post-pandemic work scenario could involve three to five days of remote work a week, with a couple of dedicated in-office days for the entire team.

It is not only satisfaction with the new working from home arrangements that will stop a rush to the office from the suburbs. People are nervous about public transport and social-distancing measures mean that it’s actually quite time-consuming getting people into large-capacity buildings such as those seen in the Square Mile.

In places of high land value property developers have been reaching for the sky to generate the returns required to make the financial commitment to construct. When only one or two people can use a lift simultaneously, getting large numbers of people back into an office is time consuming – eating further into the day after a long commute. It isn’t physically possible to get people into these buildings efficiently, possibly until a vaccine is developed. Many companies also remain cautious, even after distancing rules were recently relaxed to 'one-metre plus', with distancing of two metres likely to remain best practice for many.

All of this implies that areas that were previously regarded as prime property are unlikely to be as valuable as they were in the pre-pandemic world. As the recovery gathers pace, highly-centralised countries such as the UK will see the bulk of this effect. In Europe, ratings agency Fitch thinks that London and Paris will be most impacted by this new trend. “We expect regional markets, and cities with more dispersed office provision such as Amsterdam or Helsinki, to be less affected,” Fitch said.

Social distancing measures mean that the cost per worker of an office space has increased – at least until measures are repealed. Cleaning and other safety measures come with a cost. It is unlikely that many businesses will be willing to sign new leases because of the uncertain outlook for the economy in the pandemic recovery period that lies ahead.

Residential impact

These new trends could also have an impact on residential property markets. Not only has the talent pool for companies increased significantly when working from home is taken into consideration, as it is possible to employ new staff in “uncommutable” areas, but it could encourage a move from urban to more rural, as people can more easily fit such a transition into their working life.

There are some bright spots in the UK property market, but mostly relating to industrial as the rate of uptake of e-commerce gathers pace. But, for most of the UK commercial property market, things look like they are changing for good. 

Of course, predicting the demise of the office is a step too far. Many people prefer office work and are itching to get back. There are also limitations to working from home – that passing conversation in the stairwell that keep you informed, and the creative spark that comes with interactions between people. However, the demand outlook for expensive office space looks gloomier than before.

Fitch said it did not believe a large-scale shift to working from home was likely, given how suboptimal it is for people in confined or unsuitable living space – particularly for house-sharers and young or extended families. It also raised concerns around wellbeing, loneliness and mental health. Instead it sees the rise of shared working spaces as a compromise. So, maybe controversial unicorn WeWork was really onto something, before its founders imploded the company with their hubris.

A version of this article appeared in the Daily Telegraph.

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