Kenny Gray’s opinion piece below considers why the future of the office might not be quite as doomed as is being predicted when we get beyond this pandemic – as featured in the Scotsman Property section today (17 Dec 2020).
One certainty we can guarantee in this era of remarkable uncertainty is that 2021 will bring change to our working worlds once again. The big question is, to what degree?
The welcome advent of Covid-19 vaccinations offers hope of a return to some normality for those of us who, until we rapidly packed up our desks in March, spent most of our time at work in offices - if, indeed, that is what we want.
For while the pandemic has provided us with an opportunity to shape the future differently, nothing I am seeing signals the death of the office.
In fact, it would not be a surprise to see an upturn in office investment in 2021, as Edinburgh and Glasgow remain attractive locations for domestic and international investors.
And that gives reason for optimism, tempered by the fact that, while prime headline rents are holding, landlords are having to give greater incentives to attract and retain tenants - potentially with offer more flexible lease terms.
While the immediate priority is ensuring safe spaces for those who need to work in offices, we are watching closely to see what evolution follows as more of us return to the office and how best landlords and tenants can respond.
There’s much talk of tenants looking for high-quality, flexible space; functional areas which can be rented by the hour - or even parts of an hour - or for a number of weeks or months for particular projects. Many also believe smaller out-of-town office hubs will become more prevalent.
But it will be interesting to see whether visions of significant change give way to short-term practicalities.
Cost restraints will likely be a major factor - radical office reconfiguration is not cheap. Moving (and even removing) desks likely also means moving floor boxes, cabling, re-carpeting and lighting. And if your lease does not have an imminent break option, or is up for renewal soon, is just making a return to existing layouts and old practices more realistic? After all, the change in office culture may not be so great once the need for social distancing diminishes.
A degree of home working, though, will remain for many - whether through choice or imposed - but most still believe the office will remain essential for at least part of the time and a mixed approach is likely to prevail. Whether that is on a flexible or rigid routine will depend on the organisation and will also impact on what office space is required.
What, though, will that mean for investment in our offices and the part they play in our cities and towns?
Unsurprisingly, leasing activity in 2020 has fallen sharply on previous years - with the number of transactions in Edinburgh down by about half. But I do not expect that to be the picture for 2021.
The influence of changing work practices - along with the unfortunate reality that some firms are likely to reduce their workforce as a result of the Covid-19’s financial impacts - will, while leading to a reduction in actual space requirements, trigger activity across the market.
We are sure to see an increase in sub-letting as occupiers look to release space they no longer need. I also anticipate deals being done to extend existing lettings, albeit with reduced floorplates and other improved terms.
And, I expect interest in investing in Scotland’s major cities to remain keen, not least because of low interest rates.
Within that, prime office space will remain appealing to top-end investors. That will be out of the reach of most “local” investors, but there will undoubtedly be some tempting opportunities available in 2021 and beyond as landlords under pressure look to offload. Repurposing and redesign may also offer investment opportunities.
As always, thorough diligence is key to understanding the risks. Issues around the likes of defective cladding have not gone away and increasing carbon neutral targets could require significant capital expenditure down the line. Looking carefully at the post-Covid covenant strength of existing tenants will also be key.
So, when we do all start to find our feet in post-pandemic life, the end of the office is not nigh. Our working world is changing, though, and while 2021 may not be the year that defines that, it could influence it heavily.
