Destination: office?

29 Jul 2021

In the early days of the pandemic, various commentators suggested that we were witnessing the death knell of the office and work as we knew it.  After 18 months of our personal and professional lives being thrown into disarray, it’s certainly true that our expectations around the workplace have changed.  But there is also recognition that many businesses and individuals have come to value their communal commercial workplace as a collaborative, social hub that is critical to the culture and the future of their businesses.
 
So, is the office - as the formal workplace - dead?  No.
 
Is it set to change? Absolutely.  Undoubtedly landlords of such spaces will have to adjust their offering, but the future of the office space seems secure as long as it continues to offers significant benefits to both employers and staff.
 
Post-pandemic workplace survey
As we approached the end of Lockdown 3.0 (initially scheduled for late June), the DMH Stallard Real Estate team undertook a survey to find out how our clients’ and contacts’ operations had been impacted and how they’d been adapted as a result of Covid-19, and what they thought about the post-pandemic workplace.
 
Responses came primarily from those in the property and professional services sectors, the majority of whom had occupied offices as tenants pre-pandemic.
 
More than one third reported a reduction in the commercial workspace they occupied during the year (to May 2021).  Of those, whilst a third had planned reductions before the pandemic hit, over half attributed the reduction in their workspace directly to the impact of Covid.  The pandemic clearly accelerated – and extended - the plans that some businesses had:

“ … medium term plan was to downsize offices slightly; Covid made this happen faster and we downsized more”
“… already planned but downsized further due to the pandemic”

Nearly one third (31%) of respondents expect their workplace requirements to change in the coming year.  Of those, 81% anticipate a reduction by this time next year, but 19% expect to see an increase.
 
Hybrid working here to stay
The answers across the survey suggest that a significant number of businesses had already adopted a hybrid model of flexible working before the pandemic forced many of us home – to a point: quite who was able to adopt a flexible work pattern was controlled, with just 40% of businesses allowing the majority of their staff to work flexibly.
 
Looking forward, many more of our respondents anticipate working patterns changing as we move through the next year, with increased numbers of their people being allowed to work flexibly; 87% said that they will encourage a form of hybrid working, with the normal working week split between home and the workplace. 
 
This is in part due to the changing expectations of employees in respect of working arrangements which have shifted significantly during the pandemic, and in part a recognition of the synergies of team working and collaboration in a shared space.  Of course balancing individual preferences with the needs of the business remains challenging.

“… we have different teams with different tasks; most have worked very well from home - cloud based IT systems were already in place. I think that there will be a hybrid agile working arrangement. We now also have a larger pool of talent to recruit from if we are willing to fully embrace remote working for some roles.”
 
A significant number (27%) went as far to say that  some of their people will not be required to return to the workplace at all.
 
Good news for landlords
Whilst 60% of respondents said that changing working patterns were likely to reduce the workspace required, there remains good news for landlords: 76% still think that there is a need for commercial workspace; a further 17% thought there was less of a need – but a need, all the same.
 
Collaboration, training and staff welfare – all of which also contribute to the culture of a business - were amongst the key drivers cited for retaining commercial workspace. 

“ … physical office gives a sense of community and belonging”
“… it is important for staff well being that an element of the working week is office based with colleagues, and that the office space provided is welcoming”
“… the biggest casualty [of working from home]  has been company culture … there has been a negative mental impact for most … we are all altered in some way.”
“There will be a commercial advantage in hiring new talent to offer a hybrid model.”
“The workplace is still key for culture and engagement as some things are simply better done in a physical face to face environment … that’s why we’ve redesigned the office to create zones for collaboration, quiet spaces, social interactions.”
 
We’re coming home
Whilst 70% of respondents maintain that people are happy to be returning to the workplace, they also acknowledge a broad range of views.  It seems typically that it’s younger people that are keen to get back to the office.  But a significant number of them are not yet fully vaccinated, which is a cause for concern for many.
 
That said, the proportion of people back in a commercial workspace by the end of 2021 is expected to be in the order of 76%; nearly half are expected to be back in situ to some degree by the end of September.
 
The working environment
There is also every chance that the configuration and use of workspace will change going forward.  Half of respondents are expecting to re-model their current accommodation in order to make it more suitable for agile, flexible working practices and to promote Covid-safety.  Reduced density of desks, more meeting spaces and designated social spaces were key considerations.
 
Many businesses (60%) are also returning to their workplaces with a growing recognition of the need for greater energy efficiency.  Measures being considered include electric charging points for vehicles, paper-free environments, greater recycling, the provision of cycle racks and changing facilities, and a move to green energy.
 
A changing sector
It looks set that the changes we have seen in recent months in respect of working practices will be maintained. So what will be the long term impact on the commercial real estate sector?
 
The pandemic has certainly shaken things up and proved that with the right technical support, a flexible mind-set and a little trust, many office-based employees can work remotely very successfully.
 
However, it has also reinforced the fact that businesses and workers alike appreciate the connection to a physical workspace and, more than that, they value the human interactions afforded by being in a space that enables knowledge-sharing, problem solving, generating solutions and innovating.  Workplaces are also key to demonstrating the culture and shared values of many organisations.
 
We have seen first hand that that the pandemic has put a strain on some landlord and tenant relationships as tenants have fallen into arrears and sought to renegotiate their leases; landlords and tenants now need to collaborate to find a solution to the new ways that many commercial tenants will want to occupy workspace.
 
Landlords of commercial workspace may need to think outside the box to create attractive spaces for more discerning office occupiers keen to make their space a ‘destination’ that their staff want to attend, and to make space smarter. Fit-out and in-house wellbeing “perks” may become part of the package they need to offer, and the adoption of the latest technology, such as buildings recognising us via our smartphones, may be what’s needed to gain a competitive advantage.
 
The new leases of these smart buildings are also likely to look different, possibly with more breaks and shorter terms, and probably including pandemic rent suspension clauses.
 
Landlords in the residential space also need to take account of more people working from home.  Many tenancies and leases of rented flats and houses will prohibit business use, but do they allow working from these spaces?  Landlords may be happy to allow working from these homes two or three days each week, but they should check the terms of any mortgage, superior lease or insurance policy to make sure they are not being breached.
 
We have also seen an increase in noise nuisance claims from tenants who are working from home and more sensitive to disruption from, say, works being done by the landlords in common parts or neighbouring buildings, or by adjoining flat owners.  Do residential developers now need to look at their future builds in light of these changing working patterns?
 
We can be sure of one thing in the property sector as we emerge from the pandemic: interesting times lie ahead.
 

Further reading

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