You wake up in a glass skyscraper with a view of The Gherkin. As you pour your morning coffee, bankers are already piling into the Square Mile. But you haven’t pulled an all-nighter in the office, this is your new home. Or it could be, if a plan by the City of London to convert empty office spaces into 1,500 residential units by 2030 comes off.
The return to work that so many companies had planned as the pandemic ebbed has not happened. Google and Apple have both just told their staff that they are postponing the mandatory return to the office until January, and even then they expect a combination of working from home and the office. According to Remit Consulting, London offices were at 11.5 per cent of their capacity on average in the week ending August 6 — and London is evolving to this mass shift in working habits.
It is not that firms are abandoning the office completely — in fact TikTok, property company JLL and law firms Travers Smith and Skadden have all committed to long leases in large London HQs in the past few months. But the landscape is changing as landlords try not to lose money on vacant space and a divide emerges in the market between modern spaces and more traditional models.
“If you’d asked me a year ago what the London office market would look like in the summer of 2021, I would’ve said a total car crash,” says Michael Pain, partner at estate agent Carter Jonas. “I thought we’d be seeing landlords slashing rents all over the place and loads of empty office space on the market. But instead we’re seeing the market split, with modern flexible spaces which are in high demand, and then less premium, tatty offices becoming obsolete.”
“Firms have told us that they remain committed to retaining a central London hub but how they operate will change to reflect post-pandemic trends, such as hybrid working,” says Catherine McGuinness, policy chair at the City of London Corporation. “The Square Mile must evolve in order to provide an ecosystem that remains attractive to workers, visitors and residents.”
There is suddenly a lot of space available. “Because commercial space in London has long leases — typically 10 to 15 years — companies are now trying to save money by subletting their unused space,” says Pain. There is currently almost double the pre-pandemic level of space for subletting on the market, according to Savills.
But luckily it is in demand. According to property agency CBRE, global investors have earmarked between £40 billion and £45 billion to invest directly into London offices, more than any other European city and the highest volume of cash since the agency started tracking investor intentions in 2012.
“Lots of people are looking for office bargains, but they are not there,” says Mat Oakley, head of European commercial property research at Savills. He points to the speed of the UK’s vaccine roll-out as a crucial draw for overseas investors in London, as well as “key players” thinking about what they will do with it long-term rather than worrying about filling it right away.
Co-working spaces are also still popular. “Companies are recognising the benefits of more flexible spaces,” says Mathieu Proust, general manager for WeWork UK, which has opened two new London outposts this year. He points to companies such as Klarna, who just moved their London HQ to a 11,000 sq ft space at the WeWork in Holborn. “We’re also seeing more demand from individuals who are doing hybrid working but may not be able to work effectively from home.”
Co-working spaces aren’t just more flexible, they remove a lot of the overheads (and new headaches) that come with running an office in the post-Covid world. “The question we need to ask is: if you’re a team of 10, on the days that you’re in the office, would you rather have a small leased space with no amenity, or access to thousands of sq ft where you can be surrounded by new people to interact with?” says Jonathan Rosenblatt, co-founder and co-chief exectuive at the co-working space Spacemade, which now has six locations in London. “Businesses don’t want to think about building compliance, air quality, sanitisers, extra cleaning and more. They want all of that to be taken care of.”
This demand for high-quality co-working spaces and office buildings has taken many by surprise. “I’ve been in this business 30 years and this is the first time I’ve seen an economic downturn where companies don’t want to move to cheaper offices, they want to move to more quality spaces,” says Pain.
“Vacancy rates in the City of London have risen from 5.3 per cent in March 2020 to nine per cent in June this year, but the empty space is mostly in older stock and rents in new offices have held firm. Employers realise that if they’re going to succeed in getting people back to the office, they’re more likely to achieve that if they’ve got a vibrant, pleasant, Covid-safe environment.”
In a recent Knight Frank survey of almost 400 large employers who collectively employ around 10 million people, 37 per cent of respondents said that property formed part of their strategy to attract staff.
“People need to feel they’re in an environment where they’re getting more than they get at home, especially as they might be commuting from further out,” says Brendan Kilpatrick, senior partner at PRP, one of the largest architectural practices in London. “We have different demands from our office space, too. The rise in video calls means noise can be a factor in open-plan offices, so we’re doing a lot of work on acoustic separation. There’s been some amazing innovation. At Google’s HQ in Silicon Valley they are installing inflatable ‘balloon’ walls which create on-demand, sound-proof privacy barriers.”
At its Paddington office, Microsoft is prototyping hybrid meeting spaces which simulate face-to-face interactions. Cameras are being placed at eye level in order to improve eye contact, with spatial audio installed so that remote colleagues’ voices are heard from their position on screen.
Sustainability is a deal-breaker for companies seeking new offices. Simon Carter, chief executive of British Land, one of London’s largest developers, says: “18 months ago, one or two [tenants] might have had sustainability somewhere in their list of requirements. Now it’s everyone.”
Many predict a rent gap opens up between offices with low emissions and those without. “As older, less-sustainable buildings become empty, new uses will have to be found for them, whether residential, retail or as cheaper office space for tech start-ups or studios for creatives,” says Pain. Artists’ studios in the Square Mile alongside tech giants? Post-pandemic, anything is possible.