As the Covid-19 lockdown continues in some form across much of western Europe and the United States the majority of office dwellers are now working from home (#WFH), but will this prevail as the new norm once the pandemic is over, and what are the implications for the commercial property market asks Kames Capital’s Richard Peacock.
Peacock, who manages the Kames Property Income Fund, believes post lockdown there will be an acceleration in the shift in working patterns, that begun pre-pandemic, towards more flexible working patterns, which in turn will affect the provision of office space and how it is used by businesses, but they will still have a roles to play.
He says: ‘I have no doubts about the long-term viability of UK office market. There is a supply and demand imbalance in almost all UK office markets and a UK recession is likely to delay the supply of new development stock coming through which will heighten the imbalance if tenant demand recovers as we expect.’
He believes the current lockdown has demonstrated the effectiveness of working from home in a crisis, but he also highlights the challenges and drawbacks of not being physically together.
Peacock says: ‘The benefits of collaborating in an office environment are likely to be even more widely recognised at the end of this process and it will accelerate some of the themes we have seen emerging in recent years which have seen a huge transformation within the office sector.
‘Office buildings are being recognised as a recruitment and productivity tool by occupiers. The idea that landlords are simply a distant rent collector has changed with the owners of office buildings recognising the need to play a more active, engaged role with their customers – the occupiers. This has created challenges around the design and layout of buildings, the provision of facilities and amenities demanded by modern occupiers, the creation of a community within an office and offering different leasing models to provide flexibility.’
He expects to see this becoming even more important in the coming years as most businesses begin to recognise the opportunities to reduce property costs through agile working. It is therefore likely that office requirements will shrink marginally as a result of these increased efficiencies so a 10,000 square foot requirement could now be reduced to say 8,000 sq ft but given the lack of good quality supply, this doesn’t really impact the supply and demand relationship.
‘However, I expect tenants to be even more determined to occupy well-located buildings with the right amenities that create the right collaborative conditions for their staff,’ he adds
‘We are already hearing about occupier requirements still being actively pursued and will have a better picture on tenant demand in the coming weeks, but I don’t think everyone talking on Skype has undermined office demand. Quite the opposite, I expect there are a lot of people who are desperate to get back into an office!’