The Office 2.0

Written by: Imogen Rowland Posted: 05/07/2021

BL73_Office2.0 illoAfter more than a year of remote working, the world is starting to open up once more. But will the office return – and will we recognise it if and when it does?

The office is dead – long live homeworking. At least, that’s what the headlines would have us believe. After more than a year of enforced and unprecedented change in the way almost every organisation works, the slow relaxation of lockdown rules is now raising questions about the future of the office as we know it – and how businesses will weather these changes. 

So what does The Office 2.0 look like? And what will financial services companies – and landlords – need to do to tempt employees back? More importantly, how will the Channel Islands fare in comparison with the UK?

To get a clear understanding of where things stand, it’s helpful to understand where the office market was before Covid-19 changed the world view. Back then, as serviced office spaces such as WeWork and Second Home multiplied in London and across Europe, demand for premium office space in the Channel Islands was at an all-time high.

“In 2019, there was a significant amount of new office space being created,” says Chris Philpott, Partner at Carey Olsen and leader of its Jersey property team. “Lots of financial services companies were looking to move out of older, secondary office space and into the International Finance Centre in the middle of St Helier. 

“At the same time, there was a significant number of property investments, so the market was strong for landlords.”

Nick Terry, Executive Director of Alternative Investments at Ocorian, agrees. “At the back end of 2019 we were seeing an awful lot of demand for desk space in central business districts, and as a result office rents were generally increasing.” 

The same was true across Europe: increased demand was pushing up rents and making transactions more landlord-friendly, with lower rent-free periods, fewer lease incentives and, typically, lease lengths increasing. 

Elsewhere in the UK, the growth of serviced offices was also being buoyed by interest from major firms such as Deloitte taking up large swathes of flexible spaces.

Consequently, the property investment market was also strong. “Pre-Covid-19, prime grade A offices were seen as an attractive investment, with the best assets attracting great interest and competition from overseas, as well as local investors,” explains Jeff O’Boyle, Partner and Head of Property at Bedell Cristin. 

“In particular, Gaspé House and IFC 1 were sold at very impressive yields. In Jersey, we saw some of the largest office sales in the British Isles in recent years. 

“Understandably, the pandemic took the heat out of the local investment market last year,” he adds. Things – inevitably – slowed down considerably.

Life after Covid

As life begins tentatively to return to normal, does the same happen to offices?

Over the past 14 months, companies have been forced to adapt to a remote way of working, virtually overnight, and many have reported a rise in staff productivity. In February, HSBC announced that it was going to reduce its global workplace footprint by 40%.

Technologically, even those companies historically resistant to change were forced to adapt, as working from home replaced daily commutes and business travel.

Julie Melia, who leads Mourant’s Jersey property team, says the office is far from dead – offices will still exist, just in a different guise.

“Offices still offer some elements of work life that can’t be replicated remotely,” she says. “Businesses still need a central hub for all sorts of reasons – for client-facing meetings, to enable collaborative working and to help train up the younger workforce. 

“So, it could be that companies offer greater flexibility to their workforce in terms of working from home part of the time, although the office space will still be key. And even if the space is smaller, it will probably be higher spec in order to attract workers back.”

That enhanced spec is likely to be the responsibility of companies and landlords. For companies, creating an environment that attracts the top talent, impresses clients and is fit for purpose in a post-pandemic world will be key. For landlords, keeping their properties in cutting edge condition will be a key differentiator.

O’Boyle says: “One of the key conversations taking place right now is what businesses want from the office. 

“In the past, we probably all focused on the office as a place just to work. But the pandemic has demonstrated how important the social aspects of the office are to people. Communication is easier and more natural in an office environment and, unlike video calls, you don’t need to unmute yourself before speaking. 

“We are seeing that local office workers are very keen to come back to the office, albeit with more flexibility.” 

There are also long-term implications of remote working to consider. Unless companies make a concerted effort to connect with staff, “there is a risk that employees who choose to work from home permanently could be neglected and fall between the cracks”, says O’Boyle. 

“Businesses will need to be on the front foot in seeking to look after the wellbeing of all their employees, not just the ones that they can see.” 

His concerns are shared by Ocorian’s Nick Terry, who points out that managing HR issues is far more challenging in remote working scenarios.

BL73_Office2.0 illo2Islands protection

The Channel Islands have felt the brunt of the office shutdown far less than the rest of the UK. Jersey-based D2 Real Estate conducted its annual Channel Islands Office Market Review earlier this year and the results are promising, according to MD Phil Dawes. 

“The Channel Islands’ office market is quite unique, because there’s never been a huge amount of supply,” he says. “In 2018/19, take-up of new office space hit record levels, and because there’s finite space, we always knew that 2020 would be a quiet year.”

However, survey respondents are also keen to return to the office, with more than 30% reporting already being back at full occupancy and more than 40% intending to be full within six months. 

‘Relevance of the office to business’ scored 4.31 out of 5 in the survey, proving that, for Jersey and Guernsey, a return to the office is not in doubt. 

Moreover, 46% of respondents expected their occupational requirements to remain the same, with 25% anticipating requirements to rise. Just 12% expected their requirements to fall. 

In the near future, terms may well switch in favour of tenants, but Terry sees no immediate ramifications for the islands’ property market. 

“Real estate should always be seen as a long-term investment,” he says. “It’s an expensive and slow transaction, so generally people don’t flip in and out. 

“Landlords and investors will be looking at their portfolios to see how potential tenants might use their spaces, and considering how they can be most attractive to occupiers. They will be looking to both the usability and the sustainability of the buildings.” 

Carey Olsen’s Chris Philpott agrees. “Despite Covid-19, we have still been able to relocate clients to new premises,” he says. “The only difference has been that a lot of the developers had to extend times on contracts due to inevitable delays with the fit-out. 

“But we’ve been able to secure some very good deals for premises during the pandemic, and tenants have been able to explore opportunities, thanks to the shift in demand giving more power to occupiers.”

The other impact that will only become truly apparent as the world begins to open up is the wider effect that the pandemic, and changes in work routines, have had on the businesses that have traditionally supported offices. 

Cafés, shops and restaurants in business districts will have felt the force of the lockdowns hardest – but again, this is likely to affect the Channel Islands less than bigger cities, where commuting times may make working from home a more permanent prospect. 

The pandemic could also have an impact on the pension funds that have traditionally owned the British high street – which was struggling long before March 2020. 

But, once again, this is less of an issue in Jersey and Guernsey, where such premises aren’t closely linked to pension funds, explains Melia.

The Channel Islands are unique within the British Isles, believes O’Boyle – and in a unique position. “We have an abundant supply of highly skilled financial services experts and all of the necessary infrastructure to support our finance industry,” he says. 

“Therefore, we would expect interest in establishing offices from new entrants to remain high and for growth from established businesses to continue. Inevitably, that will lead to continued demand for offices.” 

And those rumours about the demise of the office? Paraphrasing Mark Twain’s quip about reports of his death, O’Boyle concludes: “Reports of the death of the office have been highly exaggerated.” 

What the market says

D2 Real Estate’s Channel Islands Office Market Review surveyed 115 companies in Jersey and Guernsey between December 2020 and January 2021. Key findings included:

• Office environment and cost were considered the most important future occupational priorities, Covid-19 resilience the least.
• Cost was a key consideration for respondents – but a high proportion considered the office environment more important.
• The importance of lease flexibility was neutral – another key differentiator between the islands and the UK mainland.
• Maintaining staff wellbeing was a concern for 40% of respondents – something not easily achieved working remotely.
• More than 45% of respondents anticipated future operational requirements will stay the same, while more people anticipated a rise (25%) than a fall (12%).

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