I thought for this blog I would look at what the longer-term effects of Covid-19 could be on how we work, what the impact of this could be on our cities and ultimately the consequences for the residential real estate investment market.
Corona virus has had significant ramifications on our daily lives and the way society operates with one area seeing a significant level of disruption; the workplace. During lockdown people were forced to work from home, there was already a move towards a flexible approach to working with less emphasis on the traditional 9 to 5 office based model but corona virus has accelerated this trend.
So, as we tentatively move out of lock down and people are encouraged to go back to work is this change going to endure? It isn’t unreasonable to assume that the period of enforced remote working over lock down will, to some degree, normalise the practice and the result will be more people practicing some form of flexible working. Though we think this will be a blended approach which will involve some home working but also days in the office.
According to recent McKinsey research, 80% people questioned reported that they enjoy working from home with 41% saying they are more productive than they had been before and 28% that they are as productive. Many employees liberated from long commutes and travel have found more productive ways to spend that time, enjoyed greater flexibility in balancing their personal and professional lives, and decided that they prefer to work from home rather than the office.
This all raises the question of how much office space will actually be required? A number of larger organisations have already announced they are adjusting their working policies. Twitter announced that it has shifted its stance from “strongly encouraging work from home to now enforcing a mandatory work from home policy. Jess Staley the CEO of Barclays said that “the notion of having seven thousand people in a building may be a thing of the past.”
According to research conducted by video conferencing platform Whereby, who surveyed 1,500 respondents on how they expect working practices to change once lockdown measures lift it was found that 82% of businesses are now considering allowing more staff to work remotely on a permanent basis. At the same time, 65% said they will downsize or change their office space once restrictions are lifted.
Gartner a leading research and advisory company surveyed 317 CFO’s and Finance Leaders in March 2020 the results showed that 74% will move at least 5% of their previously on-site workforce to permanently remote positions. In fact, nearly a quarter of respondents said they will move at least 20% of their on-site employees to permanent remote positions. “This data is an example of the lasting impact the current corona virus crisis will have on the way companies do business,” said Alexander Bant, practice vice president, research for the Gartner Finance Practice.
In addition, the current state of the economy will be focussing executives’ minds on cost savings and one way of reducing overheads is of course by reducing the use of expensive office space. Sir Martin Sorrell who runs S4 Capital said recently “I spend £35m on property in a year, I’d much rather invest that in people than expensive offices.”
Michael Silver the Chairman of Vestian a real estate consultancy firm has projected that this could result in commercial property values dropping by 30%, he said “landlords will be renegotiating and rents will be settling down in a way we haven’t seen since the early 90’s.” Savills have reported that 600,000 sq ft of office space has come onto the market in London since the start of lock down.
Of course, there are many industries that due to the nature of their work will not be able to have people work from home examples are manufacturing, travel, retail and health care.
It is also worth pointing out that working from home has its problems. The limitations to working from home are things like technology, I’m sure we’ve all experienced the frustration of Zoom calls that don’t work to juggling childcare. Home sharing can also be a problem as many young people who rent are finding themselves isolated in small bedrooms often lacking a proper workspace and shut off from the usual social hubbub of the office.
Training is another area that would be difficult to accommodate in a remote working set up as I am sure those of us who had to try and help with home schooling during lockdown will agree.
So, we do believe there is going to be a change but the office is not dead, though the use of space and the amount required by organisations is likely to change. As a company we have restructured our working practices to a more blended approach we mentioned earlier. That said we feel that there is still a place for old fashioned human interaction on a face to face level. People enjoy the interaction of working together and the flow of ideas is better when people are together. So, keeping the office in place will help with productivity.
Next let’s examine in more detail what the potential fallout will be, how cities and towns might change and what effect this is may have on the residential property investment market.
Firstly, will all this mean a mass exodus of people looking to live in less urban locations? We don’t think it will, cities are not just places of work they are also centres of culture and leisure. Not everyone wants to live in rural locations were socialising can be more difficult. But there will be regional variations as local socio-economic factors will mean some cities are better insulated and more able to adapt and embrace change.
In addition, the hybrid model will still mean people will need to get to the office for some of the time and probably will spend a greater percentage of time in an office environment than working from home so will still require access. Though it will be interesting to see exactly how this will work in reality and what percentage of time is spent at home verses being in the office.
There may be some growth in outlying areas and smaller satellite towns would be sensible to look at remote working places and shared office type scenarios to attract the potential market.
The term smart city is beginning to be used in certain quarters a smart city is one that looks across every aspect of its operations and uses technology to improve outcomes. People are expecting to be increasingly enabled by information and communication technologies that will facilitate flexible working. Sharing culture is another term, this means sharing of certain resources like childcare, cars, bikes etc and on-demand work spaces that again will help make the hybrid working practices easier.
One immediately obvious effect of the decline in the need for people to be in the office will be a reduction in commuting and the impact on mass transportation. There will be less need for people to commute to central business districts (CBD) which could in turn promote suburb based coworking centres. This will also help reduce congestion within the urban environment and help with pollution.
The urban landscape may look different with a greater emphasis on pedestrianisation, more cycle lanes and quiet streets. Local centres may see greater diversification away from office and more dining, social activities. There is talk that some high-rise offices maybe ripe for re configuring into residential housing and will such housing need to built with the home office in mind?
Open spaces have become more important during the pandemic and people are placing a greater value on having access to these areas. This could result in increasing grass roots pressure for a greater provision of parks and recreation areas.
So, what could all this mean for an investor? We feel the that urban living and cities are here to stay. But historically large-scale public health crises often result in significant changes to the urban environment and we have examined what some of these might be.
The way we work is likely to change, so investors may want to consider looking at properties that offer a home office. Access to outdoor space, leisure and social areas is going to be a growing consideration. There may be a move away from multiple shared (HMO) style of properties certainly in the young professional markets to people renting smaller units so they don’t live in such close proximity. Also there maybe be options to invest in smaller satellite towns that offer good transport links to a urban hub.
But opportunities will always exist, the PRS is expected to continue to expand, and its flexibility and capacity to adapt quickly to changing market trends will, we believe, make it an attractive place for people to live.