From FLUX to FLEX
The onset of the Covid-19 pandemic ushered in a great – if unsettling – global workplace experiment, challenging traditional notions of workstyle and workplace. This was evident both in a first phase of enforced lockdown (where working from home was the only option) and then in a second phase which saw the splitting of working time between the office and other settings, including home.
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As the UK dealt with spikes and variants, we oscillated between these two phases, leading to inertia in occupational markets. Occupiers found themselves in a state of flux, with sentiment and strategy clouded by uncertainty. Horizons moved to the near term with a focus on operational resilience and survival, and market activity postponed unless necessitated by lease events.
Yet as Covid-19 restrictions lifted in the early months of 2022, evaluations of the pandemic experience (both good and bad) are bringing greater clarity to the future needs of both employees and employers. This is actively shaping the south east’s real estate markets as we enter a progressive third phase of the experiment, whereby workstyles and workplaces are being reimagined for the post-pandemic future.
The factors shaping future occupier decision-making
As occupiers begin to draw upon lessons learned, we will see greater momentum in active requirements and leasing volumes across the south east. This will serve to counter some of the more sensational suggestions made in respect of future space needs. Indeed, there has to date been somewhat of a phoney war on space. Whether the attack has been deferred or will in fact never materialise is difficult to determine at this stage. The real dynamic will become apparent as lease breaks and expiries come into view and force occupiers into action. This will play out over the next three to six years rather than months. As market momentum builds, we see three distinct but interconnected “flights” shaping occupier decision-making.
1. A flight to hybrid workstyles
The pandemic experience has brought hybrid working – work that takes place across a combination of formal office space and external third spaces or employees’ homes – into common currency. A recent survey of global business leaders by KPMG found that more than three quarters were expecting to implement hybrid workstyles within their organisation. This clearly has the potential to impact on the quantum of office space occupiers will require over the longer term. It is also a clear response to labour market conditions, in which an acute shortage of skilled labour has put employees in a position of some power.
It is worth noting, however, that only around one third of the KPMG respondents had actually implemented hybrid working strategies. The devil may well be in the implementation and there are risks to corporate culture and connection (with colleagues and clients) if an appropriate balance is not struck. The adoption of a flexible but “office first” stance from occupiers may well be the outcome.
2. A flight to quality workplaces
Hybrid working does not negate the need for office space. Rather, it amplifies the need for better quality space that can attract staff who now have greater agency over where, when and how they work. Occupiers around the world are increasingly seeking high-quality, amenity-rich space that offers an alluring alternative to home or third space settings while fostering connections and strengthening corporate culture. Central to this are amenities that support personal wellbeing and, increasingly, access to in-person training and development opportunities. This flight to quality
is leading to intense competition for best-in-class office space by occupiers keen to make the required step change in the quality of their offer.
3. A flight to flexibility
Occupiers are also taking flight to more flexible real estate solutions – that is, office space that is underpinned by flexible lease structures and also allows for flexible configuration so occupiers can “rightsize” in sync with the business cycle. Until recently this has been the purview of serviced office and co-working operators but increasingly we are seeing conventional landlords presenting more flexible product either directly through self-operation or through informal partnership with operators. This partnership arrangement also supports the flight to quality, as many operators have been at the forefront of the delivery of high-quality, high-service office space.
The flight to flexibility also has a significant role to play in supporting hybrid workstyles as shown by the recent announcement by electrical retailer Currys, for example, which is closing its permanent HQ and switching to WeWork space throughout the UK. This supports a more dispersed workforce and enables a shift towards a hub and spoke model of occupancy that has the pandemic.
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