Future Shock: the Coming Wave of Office ObsolescenceIntroduction

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The service industries they tend to cater for have taken up an increasing share of economic activity, particularly in London. Meanwhile, the regeneration of many formerly industrial cities – notably Manchester, Birmingham, Leeds and Glasgow – has meant a reorientation towards the services sector and an increasing stock of offices in city centres.

Meanwhile, office employees, who tend to be paid more than the national average, support a whole range of other businesses – from sandwich shops, pubs and restaurants through to the broader retail industry; as the think tank Centre for Cities has shown, there is a strong correlation between the volume of local office employment and retail footfall. This has been shown very starkly since the Covid-19 pandemic, with many city centre businesses – particularly in F&B – struggling with lower customer numbers, particularly on certain days of the week.

The rates paid by office occupiers are also a key part of local government finance, accounting for 20-30% of business rate income in cities such as Manchester and Leeds and over 50% in Westminster; in comparison, the median local authority gets just 9% of its business rate revenue from offices. Business rates now account for close to 5% of all tax revenues.

They are also important investments for institutional investors and indirectly for large numbers of ordinary workers. Insurance companies and pension funds directly hold some £48bn and £43bn of direct commercial real estate, with a further £72bn held in collective investment vehicles. At least a third of this is likely to be in office assets – perhaps around £55bn. These funds may also own shares in REITs, which own a further £76bn of assets; within these, offices are by far the largest sector at £26.5bn.

And perhaps most importantly, the UK’s businesses and their employees rely on the development sector to provide a stock of good quality offices in the right locations. If the conditions are not right to provide this, there could be implications for productivity, business investment and economic growth. But as with the traditional High Street, the office has a much briefer history than many might think. Humans have carried out similar jobs in the past without offices (early City traders worked and dealt in coffee houses, for example), suggesting it is not a necessary part of “knowledge” work. The first purpose-built example was probably the Old Admiralty, constructed for the Royal Navy in 1726 – although some would point to East India House on Leadenhall Street – but commercial office buildings did not become commonplace until the Victorian period.

The rise of large financial or industrial concerns led to the need to gather documents and clerical staff in one place. The first more substantial commercial office block, the Brunswick Building, appeared in Liverpool in 1841, but it was not until the 1860s that purpose-built offices started appearing in the major commercial centres, especially London –making use of changing building technology and the invention of the lift.

Clearly, some of the original reasons for the office’s existence no longer apply; with digitisation, the internet and cloud technologies, document storage and physical connections to a centralised server have become increasingly unnecessary. Networking technologies and audio-visual capability in laptops mean that physical proximity is no longer as vital as it was.

Even before the dramatic impacts of the Covid-19 pandemic, these changes had led to a more mobile working environment, with laptops and hotdesking arrangements reducing the space required per employee (and the requisite costs). According to the British Council for Offices (BCO), the average density in UK offices has increased, with the amount of space per desk falling from approximately 160 sq ft per desk in 2001 to just over 100 sq ft in 2018. (The UK’s offices were among the most crowded in the world; densities in neighbouring countries were generally lower, although the figures are perhaps skewed by London). Remote and flexible working had existed before the Covid pandemic of 2020-2022, but the forced closure of offices during that period accelerated the use of these technologies and led to claims that the era of the office was over. However, workers have returned to the office, if not necessarily for the whole of the working week – a “hybrid” model has emerged. More recently, companies have begun to encourage workers back to the office more enthusiastically amid concerns over productivity, although this is far from universal.

However, while attendance has increased, it still remains below pre-Covid levels, suggesting that a permanent shift to a more flexible approach has occurred. On the other hand, policymakers and economists have raised concerns over the wider issues as agglomeration benefits are lost. There is a substantial body of academic evidence that emphasises the importance of physical proximity, “accidental” meetings and information transfers and the greater attention paid during face-to-face exchanges.