Driven by improvements in workplace technology and accelerated by the impacts of COVID-19, remote and hybrid working has exploded over the last few years with 1 in 5 employees currently working a mixture between home and the office.
The sudden adoption of remote working raised serious doubts about the long term future of the office market, with rents and demand for premises, especially those holding large numbers of staff expected to drop dramatically. In 2020 lettings of office space halved compared with 2019 and many investment deals fell through as investors withdrew from the market.
Time has shown a far more resilient office market than expected, with the South West and Wales Branch of the Office Agents Society most recently highlighting strong activity across the board resulting in the highest take up levels for Q2 over the last 3 years in both the city centre and out of town markets. With the H1 figures at their highest level for 6 years there continues to be real positivity in the office market.
It should be noted that there has been a sharp disparity in remote working between sectors and industries with some relying heavily on the physical presence of their staff, while others can largely function through technology and a virtual presence. For example, 80% of those within the IT and communications industry were working remotely in 2021.
Overall, the main impact of remote working has been to push companies to reshape their offices for a modern workforce with emphasis on flexibility and ‘the employee experience’. This will involve a focus on providing amenities in office spaces ranging from easy access to food and drink facilities to break-out areas, as well as the greater incorporation of assistive technologies.
What we see in the market is that tenant priorities remain for high quality Grade A space with requirements for wellbeing and sustainability at the forefront of most acquisitions. This reflects the desire by companies to attract staff back into the office, but also recognising the UK governments pledge to cut carbon emissions by 2030, recent spikes in oil and gas prices, and companies ESG policies.
In contrast, while the secondary office market will continue to provide essential space to SME’s, demand and rental growth is expected to underperform in comparison to prime. Additionally, with the increase in construction costs some offices in peripheral locations run the risk of becoming stranded assets as substantial refurbishments do not make commercial sense.
Questions remain about what a permanent and wide reaching change in working and living patterns means for the office market but generally speaking these changes are not likely to diminish the need for office space. To the contrary, the new purpose which is emerging may require more square footage to facilitate this changing work pattern.
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