18 September, 2024

Future Shock: the Coming Wave of Office ObsolescenceChallenge Three – Hybrid and Remote Working

Share:

VIEW THE FULL REPORT

For some time – since widespread high-speed broadband, at least – it has not been necessary to be in an office to carry out productive office-type work. The emergence of networking and video conferencing has made this even more feasible. However, it took the enforced conditions of the Covid-19 pandemic lockdowns to introduce it en masse to the workforce. Initially, many employers found this satisfactory and did not note any productivity losses, with some executives arguing that the “office was dead” and that firms could cut costs by jettisoning office space.

With the end of Covid-19 restrictions, remote work has continued to be more popular than before, although many senior managers began to express concerns over effectiveness some time ago and have tried to bring staff back to the office. The most popular route has been towards a ‘hybrid model’ where 2-3 days in an office are combined with 2-3 days at home.

However, more recently, some leaders have called for a greater return to the office against the background of more general issues around national productivity. There is extensive academic evidence showing the benefit of physical agglomeration, face-to-face contact and informal information exchange to innovation and productivity. On the other hand, the US, with perhaps the highest WFH tendency, has seen very fast productivity growth since the pandemic.

THE RETURN TO THE OFFICE

At present, according to figures from third parties such as Remit Consulting – which monitors a sample of buildings – and proxy data such as transport patterns, peak office
attendance is somewhere between 70% and 80% of the pre-Covid level on the most popular days of the week, i.e. from Tuesday to Thursday. However, it is closer to 50% on Mondays and as low as 20% on Fridays.

As the graph on the next page shows, while occupancy rose steadily from 2021 to 2023, there has been less of an observable upward trend. This suggests that this ‘hybrid’ pattern is here to stay, although it may change if the currently tight employment market loosens and the call for more office-based working gains traction.

One intermediate step may be to try to spread attendance more evenly over several days so that offices remain attractively busy throughout the week. (It is worth noting that surveys generally show people enjoying, overall, being in the office, albeit not always keen to return for five days a week. The major deterrent is the extent to which people dislike their commute.) However, if attendance does remain below the pre-Covid level, then it implies lower aggregate demand for office space. Companies may choose to centralise in the most accessible locations, where they can invest more heavily a more attractive workplace (which could benefit the brand as well as improving staff morale) which might incentivise staff attendance particularly among those with longer or more difficult commutes.

IN SHORT, WHILE OVERALL DEMAND FOR OFFICE SPACE MAY FALL, THE DEMAND IN MAJOR OFFICE CENTRES SUCH AS THE CITY OF LONDON MAY INCREASE.

There is another aspect to hybrid working that may further intensify this phenomenon. Three-dayworking (for example) might encourage more people who live further away from centres such as London to enter its labour market. This would further increase the benefits of having a centrally located office, as the potential workforce is larger than before hybrid working became common. (This is also true, of course, if the existing workforce has moved further out in comparison to the period before Covid-19).

Using Bank Station in the City of London as an example, if 120 minutes rather than 60 minutes public transport commute is considered feasible if only required two or three times per week, the potential available workforce (i.e. adults of below retirement age) moves from 5.8m to 12.8m, an increase of 123%.

Some companies may find this more important than others, depending on whether they struggle to find skilled workers in certain areas. At the moment, it seems difficult to generalise as approaches vary widely, depending on job role, industry, and, indeed, individual companies’ cultures and leadership.

While office attendance may continue to increase slowly, it seems unlikely to revert to the situation before the pandemic. At the moment, it seems to be stabilising at around 75-80%, averaged over the week. This implies that some companies could see opportunities for space saving, consolidation, and/or concentration. This would further increase demand for central locations at the expense of peripheral markets.

CONCLUSIONS - WHAT IT ALL MEANS FOR OFFICES

  • Investors need to ensure that their office portfolios are in the most accessible locations... and have strong environmental and design credentials.
  • Occupiers need to be aware of the importance of building and fit-out quality... (as well as accessibility) if they want to encourage their staff to return to the office.
  • Local Authorities and Planners need to consider how shifting transport patterns are changing how their area functions... and to to support local vibrancy. Some developers are noting a preference for locations near stations, as commuters do not want a second stage within their morning journey.

Share:

Chapters

  1. 1) Executive Summary
  2. 2) Introduction
  3. 3) The Urbanisation of the Economy
  4. 4) Environmental and Design Obsolescence
  5. 5) Hybrid and Remote Working
  6. 6) What is the Market Evidence?
  7. 7) What Are the Implications?
  8. View Full Report