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As coronavirus changes the way we think about offices and increases pressure on the high street, what does this mean for the commercial property market?
‘Stay at home’ was one of the key messages we all heard on repeat at the start of the coronavirus lockdown.
The official slogan in England might since have shifted to ‘stay alert’ as offices, shops, restaurants and more cautiously began to re-open, but staying at home – and finding ways to keep a business running at the same time – has already had a lasting impact.
In many cases, owners of businesses that were able to operate remotely have discovered that their workforce can be just as productive outside of the office, and some have started to question the value they’re really getting from their workplace.
Meanwhile, the impact on those that can’t operate from home in the same way has been severe, and increased closures in the retail and hospitality sectors could lead to more vacant properties.
According to the Royal Institution of Chartered Surveyors (RICS), demand for commercial property dropped by 24% in the first quarter of 2020, while rental projections for the next year turned negative in all subsectors.
Writing on the economic impact of COVID-19 on the commercial property market, Simon Rubinsohn, chief economist at RICS, said:
“Even as the sector benefits from a gradual improvement in the macro picture, a return to ‘business as usual’ seems unlikely.
“My suspicion is that there will be some fundamental changes in the way in which engagement with commercial property takes place as well as the usage of the space itself.”
Having had to pay “£2,000 a month in rent, plus rates, for glorified desk and bookcase storage” while his business’s offices were closed during the lockdown, UKBF user Peter Cooper said he was reconsidering the need for an office:
“We've adapted surprisingly well to working from home, so I'm thinking of just ditching the offices. We could stop paying rent and rates, and give employees £100 a month extra, say, towards electricity and gas.
“I appreciate it wouldn't suit many types of business, but for those that are entirely office based, I could see this taking off once people realise how much running an office actually costs and how little we get for our rates. (And if Tesco doesn't have to pay any, I'd rather not either, to be honest.)”
With many other business owners thinking along the same lines, and big names like Twitter and Facebook announcing permanent working from home policies, it’s possible that demand for office space could decrease in a post-COVID world.
It’s important, however, to note that working entirely from home isn’t the best option for everyone. People with childcare commitments, for example, or those who live in busy shared flats might not have enjoyed the productivity boost some have experienced.
In the same thread, Darren_Ssc said “I rent one small office and I find it pays for itself many times over. The amount of work I get done in a week compared to what I would do at home is beyond compare.”
Aside from productivity, there’s organisational culture to think about. It’s hard to build a close-knit team with shared values when you only ever see each other on a video call.
As other UKBF users pointed out, a more flexible option might be to give staff the option to work from home some of the time, but keep the office as a base.
Research by Savills suggests the virus will have a limited impact on occupier demand for office space, with more than 60% saying it will be ‘slightly negative’, and less than 5% saying it will be ‘negative’.
Katrina Kostic Samen, head of Savills KKS workplace strategy & design, said:
“These exceptional circumstances are akin to an elastic band being stretched to its limit; it will go back but not completely.
“It will be down to businesses to determine how this evolves but it must be with people at the heart. The role of the office long term is vital to provide what we crave – culture, community and connection, essential after the emotional and physical impact of the pandemic.”
The high street, meanwhile, was struggling with its own crisis long before the pandemic broke out, and we may now see an acceleration of changes that were already happening.
Research by the British Retail Consortium and the Local Data Company (LDC) shows high street retail vacancy rates rose to 12.2% in the first quarter of 2020, even before the full impact of lockdown had hit. It’s likely that will increase as retailers continue to struggle, and as Government support schemes draw to a close.
There could, however, be a sign of hope for independent retailers, whose flexibility and loyal customer base give them an advantage compared to larger companies.
Lucy Stainton, head of retail and strategic partnerships at LDC, says their data over the past few years shows independent retail has “proven more resilient than chain retailing”.
Those businesses, along with arts and community groups, could have the opportunity to make use of vacant properties, using temporary contracts in what have become known as ‘meanwhile spaces’.
The idea is to revitalise local communities, while giving businesses the opportunity to try new ideas at a relatively low cost, until a longer-term use for the property comes along.
Pop-up stores could be one option for retailers seeking to recover from the impacts of lockdown and avoid high property costs, while restaurants and bars may be able to make use of empty spaces to make room for more customers while adhering to social distancing measures.
The practical next steps will be different for every business, but now could be a good time to reflect on the spaces you use, and what you could change to make your business more resilient in the months to come.
If you’re renting an office but have been convinced by the practice of working from home, could you save money by downsizing and subletting?
And for retailers, there might be an opportunity to take advantage of city-centre locations, even if it’s just for a limited time.