The back-to-the-office challenge

Exodus: deserted offices, locked conference rooms, unused kitchenettes. During lockdown, companies asked thousands of staff to work from home. Many businesses are now re-evaluating office environments and their use of space accordingly. New ways of working will also create opportunities. By Isobel Lee

The global pandemic has had a radical effect on what was previously seen as a fairly unassailable real estate concept: the office. While like all real estate asset classes offices are in constant evolution in line with the needs of their end-users, many of the latest workplace trends, such as the rise of flexible space, have served to underline rather than diminish their relevance. However, the unique parameters of lockdown during the pandemic introduced a drastic shift to home working, even across businesses that were poorly equipped to manage this change.

“Covid-19 has made a lot of companies think very differently about how people work and how they operate and manage their workplaces,” says Dr Marie Puybaraud, global head of corporate research at JLL. “Equally, employees will now have a different mindset about work as they adapt to these unprecedented times.” Prior to the pandemic, just 3.4 percent of Americans worked from home. At the peak of the shutdown, an Upwork report in partnership with MIT found that nearly half of the workforce was working remotely.

Similarly, in the EU, nearly four in 10 people began working from home as a result of the pandemic, according to Euro- found. More than half of respondents from Finland, Belgium, Luxembourg and the Netherlands said they had made the switch.

As lockdown protocols are eased and physical offices prepare for staff to come back, choice is returning to the workplace equation. How companies pursue that choice is likely to shape the world of real estate, technology and investment for years to come. “It’s fair to say that the implementation of working from home during the pandemic has been more successful than many had anticipated and should lead to increased adoption of more flexible work models,” notes Brühl. “The often-cited advantages are lower-to-no commute times, flexible working hours and a corresponding improvement in work-life balance.” 

Especially for employees who currently commute from the suburbs to an office in the city centre, the commute time [benefits of the hub-and-spoke model] could be meaningful.
Tal Peri Head of US East Coast & Latin America at Union Investment

Traditional use of office space is under scrutiny

However, Nathalie Charles, deputy CEO of BNP Paribas Real Estate, sounds a note of caution. “Companies have had to adapt everything from IT systems to signatory and authorising processes, and this incredible test has, on the whole, worked,” she says. “However, the pandemic’s social experiment is not representative of what home working might look like in normal conditions.” Nevertheless, it seems likely there will be a change in how offices are used in the short to medium term. Many businesses will look to the example of the world’s most powerful tech firms, which are seriously examining the possibilities of remote working. Siemens has said it will establish mobile working as a core component of its ”new normal”, and will make it a permanent standard during the global pandemic and beyond.

Meanwhile, the likes of Microsoft and Amazon have extended work-at-home protocols until the autumn for corporate staff, and Facebook recently joined Twitter in stating that employees could work from home forever. Google is pursuing a hybrid model. As one of the pioneers of talent-friendly offices more than 20 years ago, introducing table football, beer fridges and more to engage and inspire its workers, the search engine giant wants key employees on its premises, while allowing partial home working for others. Rather than heralding a significant home working shift, these latest signs reflect a longer term, emerging trend. While the number of people in the EU working solely from home has remained at around 5.0 percent over the last decade, according to data from Eurostat, the percentage that sometime work from home has been rising, climbing from 6.0 percent in 2009 to 9.0 percent in 2019. A new survey by JLL backs up these findings. From an interview of 3,000 workers in July of this year, the firm found that while employees are keen to return to the office, after missing the human and social interaction, they would like to keep the option of working from home 1–2 days per week.

The pandemic’s social experiment is not representative of what home working might look like in normal conditions.
Nathalie Charles deputy CEO of BNP Paribas Real Estate

Pros and cons of city centre offices as a catalyst for new concepts

“An office environment is sure to offer inimitable benefits with regard to prod- uctivity, creativity, motivation, corporate culture and social interaction that will remain relevant and important for employers and employees in the long term,” underlines Tal Peri, Head of US East Coast & Latin America for Union Investment Real Estate. “This explains why big tech companies create ‘office meccas’ with extensive amenities and company cultures that spur many of the aforementioned positive aspects.” 

However, despite the draws of the office, commuting has never looked more unattractive. The environmental and practical issues of worker travel over the last decade have collided with virus transmission fears today in packed public transport. 

One solution is what Hamilton Place Strategies calls a hub-and-spoke model, where company premises are physically dispersed with office locations spread across cities closer to where people live, allowing users to often walk and cycle to work. In this environment, flexible offices, which conspicuously emptied out during the pandemic, are likely to gain a new relevance. “As companies re-evaluate their office footprint, the ‘hub and spoke’ model should gain more traction. Especially for employees who currently commute from the suburbs to an office in the city centre, the commute time could be meaningful,” notes Peri. 

“As a result, occupiers will likely retain their main headquarters – possibly at reduced footprints in densely populated city centres – while offering their employees flexibility by granting them access to a secondary office or co-working location closer to home. Especially for suburban locations, co-working companies or flexible office providers would offer a relevant solution, because a company in a major city centre wouldn’t want to sign direct leases for a high number of office locations in multiple nearby suburbs,” Brühl adds. 

Flexible office use an increasingly hot topic in the wake of the pandemic

JLL research confirms this trend, predicting that 30 percent of all office space will be consumed flexibly by 2030. According to the firm’s occupancy benchmarking survey, 67 percent of real estate decision makers are increasing workplace mobility programmes, while only 4 percent indicated they would be scaling back such programmes. Providers are already mobilising. Hana – a flex-office subsidiary of the CBRE group – indicated it would be launching new flexible work space locations in London from July. Meanwhile, BNP and French flex office operator Now Coworking have teamed up to launch a bespoke service for transforming regular offices into co-working spaces. 

These coalescing trends seem set to have a short to medium term effect on office take-up. As usual in a downturn, secondary stock may well bear the brunt. In a report on the performance and outlook for London offices, UK property consultancy Carter Jonas suggests that vacancy in the second-hand office market is likely to increase as businesses offload surplus space and introduce more efficient ways of utilising the real estate they plan to retain. Real estate often represents the second-largest operating cost for businesses after staff salaries, meaning that savings could be vital if there is a downturn in the next 12 months.

Flexible office solutions such as co-working spaces offer many benefits in times of change, but social distancing is likely to necessitate changes to existing practice here as well.
Djokovic Photography / Stocksy

Traditional office investors are reassess- ing their strategies and exposure

However, well-located, high-quality space, which was already in short supply in key global cities, should remain attractive. Traditional office investors may also reexamine their exposure to the asset class. UK real estate private equity fund manager Moorfield had already embarked  on a long-term strategy to offload its office assets pre-pandemic, but as chief investment officer Charles Ferguson-Davie notes, the timing of the firm’s final sale was textbook. “We actually sold the last of our offices in the first week of lockdown,” he says, “completing the disposal of a portfolio worth about £1 billion. We have a great track record in offices and would invest in them again, but the result of the pandemic is that we are now in watch-and-wait mode.” Moorfield’s evolving investment strategy reflects a larger industry trend of investors pivoting away from the hitherto traditional asset classes of offices and retail and towards recession-robust “living” segments, including student housing, multifamily and senior residences or healthcare. As interest in these asset classes rises, what will the effects be on office investment? All evidence suggests that the long-term investment case for offices is strong.

Offices need to offer state-of-the-art functionality

According to Nathalie Charles: “History shows that over the past 30–40 years there have been a significant number of crises, for example the dot com bubble and the global financial crisis, but in parallel, total office stock has grown in absolute terms. Megatrends including urbanisation and population growth, as well as more people overall working in offices than in factories, fields and hospitals, have all contributed to this equation.” 

Equally, while corporate use of flexible offices has its benefits in times of transition, it is unlikely to prove a long-term fix. “Companies are prepared to pay for flexibility right now, but will seek balance. The bottom line is that leasing a classic office building costs a lot less in the long term,” she adds. “Looking at the bigger picture, megatrends matter more than the crisis.”

“For office investors, it will remain relevant to focus on the location – strong micro-locations vs. fringe, urban vs. suburban – plus building quality, building age, amenity package, tenant roster and many other factors that define the attractiveness and value of an office building,” says Brühl. He concludes: “The jury is still out with regard to what the future of office work will look like, but investors will focus more than ever on functional obsolescence and how to price risk as a result of the new health and safety considerations.

Healthy spaces

The design of office buildings is in constant evolution, influenced by end-user needs as well as urban planning visions and environmental benchmarks. But the pandemic has injected a new sense of urgency into fit-out and layout debates, driven by scientific data and the search for a new comfort and wellness paradigm.

Innovative office developer and redeveloper Edge has already modified its Amsterdam and Berlin workspaces to create flexible and reversible offices with a 1.5 metre protocol ready for employees to return. Before Covid-19, Edge Amsterdam was certified as the healthiest office in the world, achieving the first Well V2 certification at Platinum level. Covid-era changes include minor software adaptations to sensors to now monitor aspects such as meeting room occupancy and live air quality scores, as well as adding extra ventilation breaks after conference room use. Employees have also been educated with a welcome-back pack containing disinfectants, a touch pen, guidelines and a door opener, while new signage encourages movement flows.

Edge Suedkreuz in Berlin will be completed in 2021. The generation 4.0 office complex will offer open space that promotes communication as well as dedicated quiet spaces, meeting rooms and areas for informal networking, combined with lounges and cafés.
EDGE Technologies

Looking forward, these kinds of specs are being applied to new-build offices too. International workplace provider HB Reavis launched a tech and sensory platform in the UK earlier this year called Symbiosy, which assesses space utilisation, indoor environmental quality and incompany collaborative networks. The firm recently agreed to fit this smart solution into the office it is developing for global energy company BP, Agora Hub Budapest. Meanwhile, Skanska’s new “care for life” office concept, while leading with pandemic-appropriate protocols, is deemed a long-term strategy by the firm in line with industry wellness trends.

It has become clear that the pandemic has not diminished interest in topics such as ESG but created a focus for their application. Innovative construction techniques, such as timber frames and modular builds, will continue to grow in popularity. Evidence suggests that issues like air quality played a role in virus transmission rates during the health crisis, and this knowledge – alongside an increasingly interconnected sense of global responsibility towards health and wellbeing – means that sustainable recovery strategies are more relevant than ever in the provision of commercial buildings.

By Isobel Lee

Title image: Jetta Productions / Stocksy

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