If we look back, misty eyed, to the pre-Covid times of 2019, little did we know that our work vocabulary in 2021 would include ‘You’ve frozen’ and ‘I think you are on mute’!  We also weren’t aware that our main workspaces would be on the kitchen table, in the dining room or a desk in the bedroom.

After almost 18 months of the pandemic, a survey by digital workplace coaching firm, Ezra, has revealed that employees would now be willing to sacrifice promotion, pay rises and other company benefits for an opportunity to be able to continue working from home.  According to CBRE, there will be an increase from 42% (pre-pandemic) to 61% (post COVID) of companies allowing employees to choose when and where they work.

As a counter view to this, however, a new study commissioned by HowNow, a leading learning platform, has revealed that 67% of UK workers feel disconnected from their colleagues and that this is having a negative impact on how they view their job (source: Business Live).

So, what is the future of the office in this new world and where do the opportunities lie for property investors?

In the depth of the pandemic, it was easy to suppose that there was a bleak future ahead for the commercial property office sector. However, there appears to be a growing body of opinion, backed by recent evidence, that, rather than removing the demand for office space, the COVID-19 pandemic will rather accelerate some existing trends and change the way companies use office space.

Recent data from Savills on the City of London office market shows that, whilst the total vacancy rate of offices in this area has now hit 9%, more office space has gone under offer, as of June 2021, than at any time since the start of the pandemic. Since the pandemic began there has been an increasing trend of office space subletting, especially if the tenants were tied into long leases.  However, Property Week has now reported that the amount of sublettings of office space has recently sharply declined.

It appears that hybrid working is the direction of travel for many organisations. Savills “….expect to see a shift towards diverse location strategies and the emergence of a hybrid model – a combination of homeworking, local office hubs and a head office”.

Whilst there are many benefits in working from home, especially not having to commute, many workers (especially younger employees) appear to be craving social interaction and are keen to leave behind any social isolation they may have felt during the height of the pandemic. In addition, organisations are increasingly recognising that collaboration and culture is best built by teams being in the same place together – at least some of the time.

As a result, it appears that the office is actually not ‘dead’ but instead going through an evolution – offices will look and feel different as we emerge in the post COVID world.

Flexibility of space and of tenure does seem to be key going forwards.  This is leading to the rise of the serviced office. Commercial businesses are likely to increasingly appreciate the flexibility offered by serviced office providers – indeed, 33% of companies surveyed by CBRE expect to make more use of flexible space going forwards.

Coupled with this, and employees working from home for at least part of the week, local flexible office hubs in suburban areas are increasing.  Less commuting means more flexibility to live where you want to rather than making decisions based on your proximity to the office, and some of the rising house prices in popular rural areas are testament to this. It seems likely at present that in some of the “nicer” places to live there may be more demand for flexible office hubs from a workforce weary of working from home but keen to avoid a daily commute. However, central town and city centre working is considered still likely to be favoured by millennials.

Another trend that may continue is lower density offices, primarily as a result of social distancing, but also as a result of the of a hybrid working model. CBRE commented that this could see occupiers taking the same amount (or potentially more) office space as before the pandemic but using it differently. Similarly, there will be an increased focus on hygiene and cleaning, and to the design and construction of buildings. Savills, for example, expect contactless design in buildings for items such as lifts and doors. There will also be an increasing focus on ventilation. All this has got to be good news for the occupiers of offices.

It’s clear that organisations are going to need to create office spaces that entice their workers back into the office making them safe, clean and attractive. The Very Group has totally transformed their Merseyside campus HQ ahead of the return to the office. It is set its stall on a new permanent hybrid working model with office renovations including an open plan environment with breakout and collaboration spaces, hot desks and green spaces. There also be a conference centre, juice bar relaxation zone and gym. In addition, there will be quiet pods, training rooms and breakout space. New facilities will also be incorporated into offices – such as live music, juice bars etc, and these are likely to be highly desirable in the new office world.

However, to what degree employers ask everyone to return to the office is contingent on the nature of their organisation. For example, Goldman Sachs have set their stall out that all their employees must return to the office as they do not believe that they can operate effectively with their employees working from home. Many property surveying firms have in London have also commented that they are keen for employees to return to the office – believing that informal networking and deal making in that industry can only be done face-to-face.

Uncertainty in markets can create opportunities for investors and developers.  I believe it’s important to understand the trends occurring in this market to niche your strategies to achieve a competitive advantage.  For example, the large REIT, Land Sec, have set their stall out to invest in regional offices, believing that relocation away from London will continue, exacerbated by the pandemic.

Pre-2020, and due to a preponderance of Class O permitted development conversions from office to residential, we began to see secondary office rents beginning to rise in some locations due to the lack of availability of office space in some markets. The new Class MA permitted development right has effectively replaced Class O, and will continue this trend, albeit the prior approval matters are now more stringent.  Many secondary office buildings will not be able to accommodate the new way of working, either because they don’t have enough space to allow collaborative working or have space that can’t be repurposed to have interactive and collaborative environments.   There is, therefore, likely to be a divide between prime and more secondary office properties where secondary office properties will continue to be converted to other uses, especially residential.

Counter to this, however, there will be a raft of Class E uses, especially redundant large space retail in shopping centres and department stores where owners will be keen to explore mixed use conversions, including office conversions. I would expect to see an increased number of mixed-use schemes being developed in key office locations, such as the City of London, which will look to offer additional facilities such as gyms, coffee shops, wine bars, yoga studios and the like. I also know of several investors/developers who are looking seriously at developing flexible office space in suburban commuter towns in the south-east, to take advantage of the anticipated rising trend of flexible working.

For those that already own offices, there may be a period of rental deflation as demand thins out, and also an increase in the number of requests from occupiers, who are bound by long-term tenancies, to sublet all or part of their space.

This is a market to watch with interest.  Whilst the office sector continues to undergo a period of significant change, it is not expected that the market will be as badly hit by COVID as the retail sector.  It is likely that there will be a widened gulf between secondary and prime properties, with the winners being the real estate that is able to offer flexible space and provide pleasant work environments.  These will be the offices that will attract the best tenants and ultimately be set up to benefit into the medium and long-term.