Employers and property owners alike are implementing innovative ways to adapt their property for flexible working arrangements.
To collect reviews on what lies ahead for offices, we took a snapshot of the industry. Office space is being reinvented by technological advances, sustainability and return on investment. Here is what the market has to say.
Real Estate Recap
There is a demand to create better working environments for office workers. Government regulation is viewed as the main barrier to innovating office space.
60% say that this is currently preventing them from doing more with their space.
What is the main barrier preventing companies from changing how they use a property?
Poll ONE
1
60%
Regulation
2
20%
Other
3
17%
Funding
4
3%
Tax impact
Do changes to permitted development rights impact the ability to repurpose property for housing supply?
53%
7%
20%
20%
An improvement in the process, but does not go far enough
A positive step that will improve the available housing supply
Minimal to no impact
Other
1
2
What does the future hold for office space?
The lifting of COVID-19 restrictions has opened up the debate on flexible working, and how to use office space to facilitate. The consensus is that there is a smaller workforce attending the offices and have/plan to reduce their office space.
In the near future, property owners and occupiers are not likely to change the asset class of existing properties, according to 63% of respondents.
3
Following the lifting of COVID-19 restrictions, how will this impact the use of your office space?
We continue to occupy the same office space but have fewer people working from it
49%
Offices will be used exactly as pre-COVID-19
27%
We have or will reduce the office space that we occupy
19%
Other
5%
4
What is the most important driver of
innovating office space?
5
In the near future. Do you intend to change the asset class of your existing properties?
Technology
46%
Sustainability
29%
Return on investment
17%
Other
8%
No 63%
37% Yes
Government regulation appears to be the main barrier to changing use of property. The stringent requirements for planning permission to be granted before any changes are made to use of a building, hinders companies from making the developments they desire.
1
60%
20% of respondents who highlighted there are ‘other’ barriers of change explained this includes economic uncertainty, lease constraints, staff recruitment/retention and conflicts of interest between landlords.
20%
As expected in this economic climate, funding remains a barrier to property developments. Interest rates are on the rise, while government tackles mounting inflation threat. Office assets have also proven to be susceptible to COVID-19 challenges, so it is not surprising that banks are examining these types of investments more closely and require more robust financial modelling.
17%
It is worth noting that it seems tax has little or no impact in the decision making, as 3% of respondents selected this as the main barrier. It would be interesting to see the changes in response in a year’s time as corporation tax rises to 25% and the impact of the increasing energy costs.
3%
The permitted development rights scheme allows owners to extend and renovate properties, without the requirement to obtain planning permission from local authorities. Recent changes have seen new rules in place for significant developments, such as converting office blocks into flats.
Over half of the respondents believe the changes to permitted development rights improves the ability to repurpose properties for housing supply, but does not go far enough.
53%
20% of the respondents believe the changes have minimal to no impact. This is reflective of the fact most permitted development rights are subject to conditions and limitations, some of which still requires the owner to seek 'prior approval' from their Local Planning Authority.
20%
Respondents stated that the lack of permission to make any external alterations to the building is a hindering condition, when using Permitted Development to convert a commercial property to a residential property. The stock often can't be easily repurposed, especially for offices with inadequate windows, as they can't meet the requirements to ensure every bedroom, living room and kitchen receives direct natural light.
A further 20% believe this is a positive step that will improve the available housing supply.
20%
2
Our analysis
Our analysis
Our analysis
3
COVID-19 opened the world’s eyes to the benefits and ease of remote-working in certain sectors. As we move to a post-pandemic era, a number of companies have adopted hybrid working as well as agile working, in order to remain competitive.
This is reflected in the survey results, as 68% of respondents either occupy the same space with fewer people, or have / will reduce the office space occupied.
Only 27% of respondents confirmed their offices will be used exactly as pre-COVID-19.
68%
27%
It seems many companies are occupying the same space as before and this is in line with expectations given that companies are bound by the lease agreements they would have negotiated prior to COVID-19. The change will be gradual and the forecast from this survey is certainly expected that companies will seek to reduce the size of their office space in due course.
On a day-to-day basis, we are seeing a growing popularity of co-working spaces. This provides companies with the flexibility they need to arrange for office space as and when its needed. They are increasingly becoming appealing as they enable companies to book meeting rooms by the hour and book a hot desk in different locations.
4
Our analysis
It is clear that technology and sustainability are the two most important drivers of innovating office space.
We are seeing a rise in smart buildings and Net Zero buildings being built that implement modern technology to enhance the working environment.
New technologies are emerging every day to improve productivity, wellbeing and reduce our impact on the planet. At a time where hybrid and flexible working is becoming more culturally acceptable, companies are addressing the need to integrate the physical and digital worlds in order to facilitate collaboration and teaming, regardless of the location of where people are working.
17% of respondents believe return on investment is the most important driver of innovating office space. Companies are having to strategise creative ways of using the office space to increase its utilisation.
The majority of businesses indicate that they would not change their property portfolio in the near future. This is in line with expectations, given it is a complicated process and often set as a long-term goal rather than short-term.
However, in the past year we have seen an increase in clients that would change the asset class of existing properties from 25% to 37%. This outlook is most likely due to a combination of changes in regulation, economic uncertainty being greater during the pandemic compared to today and improved forecasting of return on investment for alternative asset classes and locations.
5
Our analysis
Conclusion
Although we have entered a new post-pandemic era, there is still huge economic and political uncertainty with the advent of the war in Ukraine, inflation and the energy crisis contributing to the aftershock of COVID-19. Organisations as a whole are being reserved in finalising their office requirements. They will require a plan to navigate around changes in regulation, repurposing properties when needed and keeping up with a fast-evolving technological environment.
You can rely on us to help you think through the implications of these changes and ensure your real estate portfolio is being well positioned for all of the changes on the horizon.
View part two
Real Estate Outlook series
View part three
View part four