Empty central business districts and office towers have become an iconic image of the Covid-19 crisis as global lockdowns have accelerated the shift towards remote working.
The success many organisations have had in switching to homeworking has raised questions about future demand for office space, which until a few months ago was viewed as central to many commercial developments around the world.
“This crisis has accelerated a movement into a future that is no longer location-based,” said Keith Perske, executive managing director of workplace innovation at Colliers, in a webinar last month. “It continues the blending of physical and digital participation in our work and personal lives. In fact our actual location has in some cases become irrelevant.”
Remote working shift
A shift towards remote and agile working – allowing employees to choose where and when they work – has been slowly gathering momentum over the last few years. The abrupt enforcement of lockdowns made it the norm for a majority of office workers around the world.
Some companies baulked at the challenge: homeworking raises significant security and IT concerns. But its rapid uptake has fuelled speculation about its long-term implications.
Real estate firm Colliers surveyed 3,000 office workers in 25 countries last month, with a majority of respondents claiming remote working increased productivity and improved their work-life balance.
Many companies are in the process of reviewing their strategies. Deloitte surveyed just over 100 chief financial officers at leading UK companies last month: the vast majority (98%) said they expected a rise in homeworking over the long-term as a result of the pandemic.
“Some businesses will undoubtedly look to remote working to reduce their real estate footprint, while others will seek to future-proof their existing offices, with ‘de-densification’ likely to take place,” Deloitte’s survey concluded.
“Agile arrangements may work for many employees, but not everyone has the type of living space where they can work productively, feel motivated and not experience isolation.
“Some industries such as financial services, insurance or the legal sector will also find it considerably more challenging to function away from the office due to cyber-security risks.”
The rise of homeworking coupled with the economic fallout from the pandemic is likely to reshape future demand for office space, affecting both supply and company requirements.
The British market is already adjusting. Almost half the property developers polled in Deloitte’s survey said they were planning to scale down development programmes in London over the next six months.
“In the light of the economic downturn, we will inevitably see fewer new construction starts,” Deloitte said. “Securing contraction finance might prove more challenging in the coming months and there is also nervousness among developers regarding rents.”
Meanwhile, US-based Site Selectors Guild surveyed its members last month: 72% of respondents said they expected the rise in remote working to have a significant impact on workplace culture and expected to see a slump in demand for office space.
Office space conversions
One impact of the pandemic on the commercial office space market may be an increase in demand for high-spec properties that are better able to meet new social distancing and upgraded health and safety standards. Older and more outdated properties, meanwhile, that cannot easily be renovated may fall out of favour, creating new development opportunities.
“Working from-home will be part of our new normal,” Meindert Jan Tjoeng, development manager at Dutch hotel group CitizenM told fDi. “It will create vacancies, which is a chance for us.”
CitizenM is planning to spend €400m developing eight to ten boutique hotels across Italy over the next decade. The group is targeting office buildings that are suitable for conversion in prime downtown locations and acquired its first property in Rome in April.
“There are rental agreements in place and it will take time, but big corporations will have to reconsider their needs for office space and reduce it,” Mr Tjoeng said.
As governments around the world slowly ease lockdown restrictions, and workers begin returning to offices and central business districts, it’s unlikely to return to anything resembling the pre-pandemic hustle and bustle. Like many organisations, commercial developers may have to rethink their strategies and contend with a reshaped economic landscape.