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QD view – Will Rishi’s call for return to office impact sector?

Chancellor Rishi Sunak has called on businesses to end working from home once the pandemic is over. It is likely to be the first of many calls as the government tries to kick start the economy – with the prosperity of city centres dependent on office workers.

Although he may have an agenda to get people back to the office, he makes some really interesting points. “Imagine you’ve just left college or university – you start this job in a big company and you’re sitting at home on your own,” he said.

“How do you get to know your peers, how do you learn the culture of an organisation, how do you get those mentors, which are important for your career development?”

I don’t think anyone believes working from home permanently will become the norm going forward, but with one or two days likely to be optimal, the big question is what impact this will have on demand for office space and rents?

It is a topic I continue to grapple with and is reflected in the discounts on offer at the big London office developers.

A survey of major global companies by KPMG this week has shed some light on the first part. Just 17% of chief executives that took part in the survey said they plan to cut back on offices after the pandemic, down from 69% in the last survey in August 2020. It would appear that remote working is taking its toll on some employees.

More than three quarters of chief executives, from the 500 firms with sales of more than $500m based in 11 countries including the US, UK, China, Japan and Germany, also wanted the government to encourage people to return to offices before employers themselves started to request it.

That has now happened in the UK, so it will be interesting to see how businesses will respond.

When thinking about the future of offices, one has an image of London or other large cities around the world. But what of the offices in regional towns and cities across the UK?

Regional REIT is adamant on the future of offices. So much so that it has shifted its focus during the pandemic to be purely focused on regional offices – putting its industrial portfolio up for sale.

It believes regional locations will be less impacted by workplace changes than large city centres, where commute times are more of an issue for employees and larger savings can be made by businesses cutting space.

More pertinent changes to the office post-COVID, it says, will be to the use and configuration of office space. Larger areas for collaborative working and relaxation will be sought after as employee wellbeing rises up the agenda. This will lead to de-densification in the workplace and, in the medium-term, an increase in demand for space to accommodate the same number of staff.

My feeling is that most businesses will not rush into any decision on future work practices and may try out different methods before formulating a view, which may have an impact on the take-up of new/vacant space and result in rents stalling in the medium term. A lot will depend on businesses heeding the call from government and the eagerness of employees to return to the office once it is safe to do so.

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