Flexible working and office requirements

As a result of Covid-19 and the associated lockdown measures, the trend for more flexible workplace arrangements has accelerated. We do not expect this to be fully reversed even after the health crisis is over. While companies will inevitably reassess their need for office space in light of more flexible working arrangements, it is likely that this will be a medium- to long-term trend. Larger companies will need time to comprehensively assess their office footprint requirements.

Survey data indicates that office-based employees are looking for greater flexibility in a post-pandemic world. The majority of employees are looking to work from home two-to-three days a week, implying that hybrid working arrangements are here to stay. Cost pressures and efficiency savings mean that many companies will welcome a reduced level of office dependency.

Taken in isolation, a greater proportion of the office-based workforce working from home would imply a material reduction in office occupation. One potentially important offsetting factor will be the reversal of the long-term trend of densification, where office occupiers have been absorbing less space per office-based employee. Creating an optimal working environment, where wellness factors are critical in order to maximise productivity, will take precedence over squeezing in more desks. This implies that there will be more space allocated per employee with fewer employees in the office at any given time. We believe that de-densification of office space will only partially offset the impact of working from home, leading to a reduction in office demand of between 15-20% over the longer term in some markets. Poorer-quality, less fit-for-purpose assets in weaker locations will bear the brunt of the falling demand. Interestingly, it could also lead to increased competition for those buildings that tick all of the boxes for occupiers.

 

The focus on FACTS

The office will still serve an important function for the vast majority of organisations, but undoubtedly the function it serves will change. Companies are more likely to have a greater focus on less dense environments, with more collaborative space. This is particularly the case for companies operating in service sectors where idea generation, knowledge sharing, and attracting and training talent are crucial for their business models. Not all office space will be fit for purpose to enable occupiers to achieve these future requirements, and we expect that occupiers will be willing to pay a relatively higher rent per square metre for the correct space in the future.