Boom Town to Ghost Town | Deloitte UK has been saved
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Few things are more poignant than a ghost city which previously was filled with hustle and bustle.
After the UK went into coronavirus lockdown on the 23rd March, one of the more surreal outcomes of social distancing, quarantine and remote working was the eerie drone footage and photographs of empty streets, nowhere more so that in the heart of London, a usually teeming global city with a population of over nine million.
But, even as lockdown restrictions begin to ease and a tentative return to work begins, it is clear that many of the new homeworking habits and behaviours we have adopted are becoming hard-wired. This has serious implications for the London real estate market.
Until mid-March, the mood was buoyant in the London property market as our latest London Office Crane Survey reveals: new development starts had reached a record high of five million square feet in the six months to March as political uncertainty receded in the wake of a decisive victory for the governing Conservative party in December’s general election. But then the mood soured with the economic shock of COVID-19.
This in turn, has affected the industry’s views on the future: at the end of March, 100% of developers interviewed by Deloitte were pessimistic about the outlook for the London office leasing market. The number of industry professionals expecting the office pipeline to decrease more than doubled from the previous survey to 46% while 54% expect it to increase or hold steady.
Deloitte’s spring 2020 quarterly CFO survey shows CFOs more focused on defensive measures than at any time since the question was first asked in 2020. Such strategies include reducing costs, increasing cash flow and reducing leverage, and thereby strengthening beleaguered balance sheets. In this environment, homeworking would seem to offer a empting way to slash property overheads, especially in prime central London locations. Businesses will be guided by the effectiveness and resilience of technology, productivity levels as well as cost pressures as they review their needs for office accommodation.
Evidence of the new normal is everywhere: Many major companies are reconsidering their attitudes to office working as more people are expected to continue working from home on a regular basis. A leading global social media player, headquartered in the US, announced that all of its thousands of employees could continue to work from home “forever”,. In the UK, one of the country’s largest banks confirmed that more than three-quarters of its staff would remain working from home until at least the end of September.
The current mass remote working is the largest workplace experiment the world has ever seen. At the height of the lockdown, some 48% of the UK workforce was working remotely. According to Deloitte’s latest CFO survey, 98% of corporates are expecting to increase flexible and homeworking in the longer term as a result of the COVID-19 pandemic.
Homeworking offers clear benefits in saving time and commuting costs as well. Flexible working allows many working parents to complete the school run or care for elderly relatives while maintaining a full-time job, a concept that could have seemed highly unlikely until recently.
Many were quick to forecast the end of the office as the pandemic forced large numbers of employees to work from home. But rumours of its end have been somewhat exaggerated.
We believe we will see a more flexible and adaptive approach: Some firms will look to remote working to reduce their real estate footprint, while others will reflect on required occupancy ratios, ability to deliver and sustain critical functions and ease of access or perhaps seek cheaper office space than originally planned.
Of course, agile arrangements may work for many employees, but they won’t work for every employee: not everyone has the type of living space where they can work productively, feel motivated and not experience isolation.
The office of the future is likely to become a hub for innovation and collaboration so office facilities will increasingly need to be top quality and supplied with a level of amenities that give the employees a positive and engaging experience.
Social distancing measures are likely to remain in place for some time so businesses could focus on introducing staggered shifts to minimise potential exposure, as is being practiced by Deloitte in Denmark.
Now that CEOs have realised that technology enables working from home, more people will continue to do so; our findings from our recent future of the City survey found 64% of people expect to work from home two or more days per week.
Cities have been powerful engines of growth for millennia. Technology is a superb enabler, but the dynamic and collaborative energy that comes from the physical interaction of people cannot be replicated online or in the Cloud. Humans love community.
The idea of the working city and the shared workplace is fundamental. London’s office market will adapt and change, as it has for decades. Architects and developers will factor in pandemic resilience to their designs. The boomtown period in the real estate market may have slowed for the time being, but London is far from becoming a ghost town.
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Bo is a research professional with 10 years’ experience, specialising in the UK real estate. Previously heading up UK industrial research at Colliers International, providing thought leadership on occupational and investment trends to Colliers existing and potential clients. Bo has also extensively researched regional office markets in the UK, producing all Colliers Manchester, Leeds and Birmingham quarterly office reports.
Russell is a partner in the Real Estate Consulting team in FA Real Estate. Russell leads Deloitte’s corporate real estate advisory practice, focusing on large corporate occupiers for whom real estate is often their largest non-staff expenses. Russell works with clients to transform organisations, processes and systems used to manage their corporate real estate, to ensure this cost base is managed as efficiently and effectively as possible.