As the changes in lockdown restrictions approach and the guidance for a gradual return for office based employees begins, our Office & Industrial team share their views.
Our team views
Smart companies will go through a period of change post COVID to ascertain what working practices are best. The only real way to engage with your staff is to instigate a period of trial and error. This is inevitably going to comprise hybrid working models with conditions.
The office should be a good experience both to retain and recruit the best talent. People will come in to genuinely do functions they are unable to do from home. The office will be a place for collaboration and a reflection of your brand.
Those who said the future of the office is dead are wrong, but we will see an ever-increasing flight to quality.
The workplace of tomorrow is one that is likely to have employees at the heart. Flexibility will be key to a dynamic environment. COVID has shown that a physical office is no longer the one of the key requisites to a successful business, therefore the onus will be on employers to make it a place where employees want to come and work.
This is not to say that the office is dead, far from it. I think we are now entering a transitional period for the office market whereby the majority of employees will be seeking some form of hybrid model of working practice going forward. Employees will want the amenities they are afforded at home to incentivise them to the office, whether it be break out space, a relaxed dress code or even flexibility around the hours they work.
COVID has opened a new method of working and those companies, and landlords, that can adapt the quickest to these needs are likely to see the benefits in both the long and short term. The office is about to get a new lease of life.
HYDE – Clarendon Road, Watford is great example of a fully refurbished 75,000 Sq.ft office building. The available accommodation has been refurbished to a high standard and the specification includes 4 pipe fan coil air-conditioning, full access raised floors and suspended ceilings with LG7 lighting.
Acting on behalf of ReAssure we let the entire 3rd floor and part of the second floor totalling approximately 20,000 sq.ft with a rent of £37 per sq.ft on a new 10 year lease subject to a tenant only break at the fifth year, Brasier Freeth acted jointly with BNP Paribas Real Estate.
The pandemic has certainly caused what can be fairly described as seismic changes to the way we have lived and worked over the last 12 months, although from the media’s perspective this has largely focussed on its effects on the retail and hospitality industries, being most obviously “visible”. Changes in office practices have perhaps been less newsworthy, but have nonetheless significant. In the early days, working from home was something of a novelty, but as time has marched on perceptions are changing.
Much comment has been made of the future need for significantly less office space, although anecdotally much of this comment came from business leaders with more than a passing interest in the prospect of potential rent savings. These thoughts perhaps overshadowed the practicalities of how a significant volume of the workforce could actually work from home, when home might be a bed-sit, not a sprawling house in the Home Counties with space for a home office, more typical of the business managers making decisions on working practices.
Working from home also means the possible introduction by stealth of opaque boundaries between work time and personal time, email traffic has begun to spread over a longer day and does the boss now expect an answer to an email sent at 8:00pm? should it even have been sent ? could the emails received out of hours have been sent by someone who took a couple of hours off during the day to take the dog for a walk and is now catching up? Working from home can also be lonely, with a feeling of isolation, and for many a physical boundary between the two aspects of their working day is welcomed, indeed for some actually trying to get into a work frame of mind from home surroundings is quite a challenge.
The office market has seen a year-long battle of stalled activity and lack of movement from occupiers of all shapes and sizes, enquiry patterns have shifted with precedence on locational & strict financial restrictions taking lead. I suspect we will see a shift towards offering office accommodation as a space to integrate and communicate, rather than a 5-day 9-5 requirement, in return allowing operators to lower their overall space requirements. We hope to see enquiry levels rise and a shift in movement patterns as occupiers start discussing their long term decisions regarding operational work hours / days and requirements on staff.
The service office sector certainly offered a notable pre-Covid early glimpse into what we may now expect the overall market to morph into pressing forward, with offerings of relaxed break out areas and compartmentalised rooms to allow teams to come together in characterful space rather than the traditional four walled board room and banks of desks.
I suspect those who have operated under the WFH banner the past 12 months are relishing the return to the office on a flexi basis but may not be ready for full submergence just yet!
Not for everybody but for many. and in particular people working in a team environment having an office base is good for business.
The return to the office should be encouraged. Having the flexibility to work from home is nice but I wonder what this will do for productivity in the longer term.
The genie, who I think are mostly the more mature variety with spare rooms and nice gardens, is out of the bottle and I doubt it can be persuaded to go wholly back in.
Working from home over the last year has adversely affected the younger generation. My millennial son who spends virtually the whole day looking at a screen while working from his bedroom in Stoke Newington is desperate to get back to the office, so much so he is actively looking to move jobs. I am sure he is not alone.
Employers should encourage the return to the office by making it a better environment, with excellent facilities but ideally also with a critical mass of people to facilitate social interaction and promoting perhaps some out of office activities again so people can develop the friendships and contacts that can last a lifetime.
It might also mean they want to stay in a job rather than move on and have to be replaced.
I think the future of the office is positive as I do believe the attraction for working from home on your own has worn off for a lot of people. Having a dedicated work space with no distractions at home is difficult, as is training staff.
Moving forward I think there will be a balance of office and home working. Some companies have already announced what they are proposing and I am sure others will follow as it will become a factor in recruitment of staff. Quality I feel will be a key point for the future and a pint after work with colleagues when working from home is not easy! It’s not the same on a Team’s call. I think dress code will be a little more relaxed, and I think the tie is now probably dead for most business environments.
The office isn’t over, it’s just going to be different.
Since the end of lockdown 1.0 the office market has been surprising, to the extent that a number of transactions have taken place where the take up in Watford will exceed the total for 2019 by the end this year. Activity has been more muted in Hemel Hempstead, but transactions of reasonable scale have occurred in the wider area. For example, 35,000 sq. ft. in two transaction since May.
St Albans has seen less activity, but this is a market with lower levels of stock anyway. The rumoured large relocation in progress in St Albans is apparently looking less solid and it is possible that the BF letting and re-gear to Skechers at Centrium in Holywell Hill, will be this years’ highlight.
It would however be fair to say that this demand across the wider region has been driven by factors in play prior to the virus, including lease events, corporate purchases and consolidation that even the virus could not halt. Where this has not been the case, the companies involved have in some cases been health related beneficiaries of the pandemic.
Surprisingly, rents in a headline sense have stayed firm with rent fees being in some cases adjusted modestly to account for possible deferred occupation.
If that’s the story so far what does the future look like?
The conjecture in the wider market suggests a variety of outcomes, some apocalyptic (the end of the office) and some even beneficial to locations like our core towns (the hub and spokes model) but the truth is that no one really knows at this point what type or scale of office they will need and where it’s likely to be required.
We can assume that there will be a greater acceptance that working from home is possible and that it is not a licence for loafing. Interestingly, the younger generation are, in my experience, the most likely to be disciplined about work outside the office. Certainly, a number of companies have indicated they do not expect attendance 9-5, 5 days a week, whatever the pandemic outcome.
That said, a lot of people particularly those who are starting out their career or whose home environment is cramped with little or no outside space, have not enjoyed working from home and have realised the benefits of the office environment in terms of mental well-being, professional and career development as well as the social side (how many readers met their partner at or through work?).
What seems likely is that offices will need to be attractive enough to make them worth travelling to and, post covid, we may see more need for social space in and around offices. Touch down facilities that don’t involve travel to an office but an office environment may become more widely used (provided we can have that degree of interaction going forward.)
Office hours are also likely to be more fluid as those who can, will choose to travel outside peak time. Presenteeism will most likely be less important, but the office isn’t over, it’s just going to be different.
The clock cannot be turned back, delivery demands and expectations of customers will only grow greater.
The effect of the pandemic on the warehouse sector has to some extent crept under the public’s radar, unless you happen to be an agent or developer, or an occupier in the market for such space.
The inexorable rise of e-commerce and the need to efficiently store and deliver products has already created an almost insatiable demand for warehousing on an unprecedented scale, and COVID has resulted in a further dramatic increase in online demand as customers are faced with little option but to buy certain goods in this fashion, particularly food, a sector where inroads have tended to be slower.
Over time warehouses have grown larger as occupiers and third party distributors delivery methods and efficiencies have evolved, with COVID arguably bringing forward changes in retailing that might otherwise have taken some years to adapt, albeit in a dramatic and wholly unexpected fashion.
The clock cannot be turned back and the delivery demands and expectations of customers will only grow ever greater. Many of today’s millennials would be shocked by mail order delivery timelines back in the day, “allow 28 days for delivery”!
What this does mean for development opportunities.
The first question is, will it suit a distribution scheme and how large can a building be constructed? Economies of scale naturally coming into play. And, as a result smaller requirements are frequently not catered for by new schemes, and in the vast majority of instances units are only offered for rent. Britain is often described as a nation of home owners and at the smaller end of the market, broadly sub 5,000sqft, this also rings true with commercial occupiers, many of whom are owned by entrepreneurs who yearn to buy their own premises, but simply don’t have the options to do so.
With consistently low interest rates, borrowing remains relatively cheap for those with a financial track record plus a meaningful deposit and, when opportunities arise, we find that freehold factory/warehouse space almost sells itself. This might seem a little strange in the current climate, but with a freehold an occupier is largely in control of their destiny, ultimately giving greater flexibility. Not having a landlord to answer to is hugely appealing, plus building improvements over time are to the benefit of the owner and there is no risk of having to reinstate alterations.
We have concluded a number of freehold sales recently, with COVID not proving to be a factor and have most recently completed a sale on a unit in Kings Langley at a capital figure of c£230.00psf.
From one extreme, to the other. At the very smallest end of the market we experienced strong demand for small units of less than 1,000sqft throughout 2020. This market is largely ignored by developers simply due to lack of economies of scale in terms of construction, and a perception that small lettings can be a handful to manage, so product is in short supply. We have a couple of estates in Hatfield and Watford, where we have completed 7 lettings this year at rents as high as £20.00psf and quite literally have a queue of applicants eager to hear if and when the next unit might be available on the market.
Particular casualties of COVID have been businesses in the hospitality and events sectors. Both having noticeable representation in our market, given proximity to London. Whilst government support may have helped, one wonders if some may seek to offload property.
In a similar vein, an unknown number of occupiers may only be continuing to trade due to Government support and rent holidays, and then may cease to be viable, potentially releasing space to the market. However for the time being, there remains a tight supply pipeline, both new build and churn, which is resulting in rents holding up, much to the surprise of many enquiries who assume the market will be apocalyptic, with cut price deals on offer.
Whether this demand for factory/warehouse space across all sizes will continue is open to debate, but it seems likely. One thing is certain however, it is always going to be a challenge to carry out a volume storage or manufacturing process working from home, so the sector looks safe for the time being.