The end of the sub-meeting and what real pressure means!
At a glance
As the return to the office gathers pace and flexible working practices become clearer, our co-head of real estate Daniel Abrahams looks at recent developments on the topic, including impact on the retail sector. He also looks at how Covid-19 is driving innovation and shaping the future of work in his latest opinion piece.
I recently posted a picture of a busy Fleet Street on LinkedIn and, given how well it was received, it appears that the renewed bustle is similarly appreciated by many. As the return to the office continues to gather pace and flexible working practices become clearer, the benefits of being in shared surroundings will again be evident. Some counter-productive by-products will be also lost. The phenomenon of texting and WhatsApp messages going back and forth whilst engaged in a video meeting leads to a multi-tier agenda or several ‘sub-meetings’ taking place at the same time. The real messaging from the main meeting and even some key decisions may be lost, and the benefit of meeting online can be materially diluted as a result.
The return to the office (or not)…
6th of September was heralded as the “return to work” day. Summer holidays over, the kids back at school and Covid vaccinations in the high 80’s per cent of the population. The only problem is that plenty of people do not want to return. A total of 70% of 1,684 people polled for the BBC predicted that workers would “never return to offices at the same rate”. The majority of workers said that they would prefer to work from home either full-time or at least some of the time.
The reasons for having people in the office, at least for a decent part of the week are well-rehearsed, but employers have little choice but to factor this in to their planning for now, or risk losing the best talent.
Forced returns to the office and pay cuts for remote workers are clashing with those who never want to come back, according to the Wired. Remote work during the pandemic provided some people with their first taste of a better work-life balance, and unprecedented time to spend with their families or hobbies. Now they are not willing to let it go. But many employers also are not ready to let the office go. Google axed the option of permanent remote work in December 2020, in a memo explaining that all employees “will be expected to live in commuting distance of your assigned offices”. Just five months later, CEO Sundar Pichai backtracked a little following a wave of employee discontent. My previous opinion piece already mentioned that Facebook was initiating location adjusted salaries and in London several government departments have reportedly considered removing the London weighting (about £4,000) from the salaries of employees who no longer wish to commute into Whitehall.
Others are taking a more pragmatic approach. Unilever is tackling the Covid trend of employees moving to the South of France and beyond to work remotely by insisting they live within a 24-hour commute of the office. I would think that most employees would agree that seem reasonable.
Retailers are also reacting as their markets shift and the news that Marks & Spencer stores will no longer stock suits is the clearest message that casual wear at home and ‘smart casual’ wear at best is now de rigeur for business attire. In total, sales of suits in the UK have fallen by 2.3 million over five years, according to the market research firm Kantar Group. It said men purchased two million of them in the year to July compared to 4.3 million for the same period in 2017. A mere two years ago not wearing a suit on a Friday was just becoming the norm in the City.
James Timpson, in his weekly column for the Sunday Times suggested that “Workers who spend their days sitting at home, often alone, are far more likely to be on the losing side of promotions, to miss out on forming friendships and to suffer from mental health problems.” In his view, if you want to get promoted, you need to be in the office. The cessation of furlough this week could also lead to more presenteeism of the kind that simply has not been possible since early 2020.
Chancellor Rishi Sunak showed his agreement in his comments earlier this summer, when he told young people that going into the office can be “really beneficial” to their careers and warned that video conferencing was no substitute. Relationships built in face to face contact can last throughout a career.
For me, I am lucky. I have a good set up at home and can manage to draft and process transactions well from there or the office. The benefit of the office is more subtle, but hugely beneficial. A tricky legal problem arose this week and after a short meeting of four lawyers in the team we had a plan and an approach for the client. This happened organically with others overhearing the issue and joining and contributing to the debate. In short order, we had the benefit of combined knowledge, rather than analysis carried out in isolation.
Meanwhile, the office is still not dead! September saw the most expensive ever office letting in London’s Soho. Ian Osborne’s company Hedosophia is arguably the most influential force behind the surging number of special purpose acquisition companies (SPACs) to have launched in America in recent years. US sources said it had signed up to pay a record £120 per sq. ft. to move into hi-tech offices dubbed the Soho Skygardens, which is expected to be complete next year. Hedosophia is taking on the entire three floors of office space — some 18,400 sq. ft. – on a five-year lease with an option to extend for another five years.
In more good news, coffee chains across the country are reporting that trade is returning to pre-pandemic levels as workers return to offices but while some are dusting off expansion plans others are being more cautious. Pret A Manger (famous during lock down for refusing to pay some landlords even though their balance sheet appeared strong enough to do so) shrugged off a disastrous 2020 when it recorded a £265.5 million loss by revealing plans to add more than 200 cafés to its 390-strong UK chain over the next two years.
Rob Darby, co-founder and CEO of 200 Degrees Coffee which has 15 sites across the UK, said it was “an opportunity-led market” in which rent-free periods, rent reductions and cash contributions to fitouts were all on offer from landlords. This allowed existing cafés to operate on lower sales than before the pandemic and opened the door to more expansion.
Other real estate businesses also expect to benefit from these changes, including flexible office provider Spacemade, who are banking on a shift towards more neighbourhood focused working models and have launched two new workspaces in Wimbledon and Cricklewood. The space is designed to capitalise on people wanting a separate place to work that is not home, nor a central office.
Covid-19 driving innovation
In previous articles, I have mentioned that I was looking forward to seeing the innovations that undoubtedly would be born out of the pandemic. One of my favourite stories of late sets out the prospect of the “Google office of the future”, with some cute ideas that seem destined to come into use and have clearly been in part shaped by Covid. These include:
- The hot desk that knows what you like – Google has built a prototype desk that adjusts to your personal preferences. Swipe your work pass and the desk height and the angle of your monitor will move to just how you like them. Saved photos of your family will flash up too.
- His and hers air-con – As a rule, women prefer offices 2C warmer than men. Google is experimenting with ceiling-mounted directional air ducts that, as in modern cars, control the temperature for individual seats and desks.
- Inflatable robot walls (probably my favourite idea to date!) – Sometimes offices need to be open-plan, democratic and collaborative. Other times, you just need some privacy and time to think in peace or to hold a private meeting. Google has developed walls made of cellophane that can be inflated and deflated like balloons. They are dragged into position by robots, which use radar to navigate the office without bumping into stuff.
- The ‘leave me alone’ chair – A new Google chair has speakers in the headrest to blast white noise into your ears, muffling inane small talk, while blinkers in the headrest keep you focused on the task at hand.
- Meeting teepees – An open-sided meeting room, helping with the fight against Covid-19 and noting that future infectious diseases will require fresh air.
In other sectors, a London investment trust has raised £200 million to build environmentally friendly datacentres in Nordic countries, where cold weather can cool the powerful computing equipment naturally and green energy is plentiful. The cooling machinery and the power required to operate them are traditionally the biggest hurdles to constructing and running data centres, which continue to increase in importance. A remote or less conspicuous location is an added bonus for disaster recovery planning.
Residential continues to remain strong
In the residential market, stamp duty land tax rates return to the pre-Covid levels from the 1st October 2021, back to those in place prior to 8th July 2020. Demand remains strong, led by those wanting more space when working from home and with mortgage borrowing rebounding in August after dropping in July.
The end to furlough may also cause a drag on the hereto phenomenal pace of the residential market in 2020/21. New mortgage approvals continue to fall, sinking slightly from 75,100 in July to 74,500 in August, but still remain above pre-stamp duty cut levels.
The biggest shake-up of planning laws for 70 years is set to be abandoned after a backlash from voters and Tory MPs in southern England. The government had intended to rip up the planning application process and replace it with a zonal system, stripping homeowners of their rights to object to new houses. It said that councils would also be given mandatory housebuilding targets. The Times suggested “the need for wholesale reform has been questioned after developers set records for housebuilding. Almost 244,000 homes were built in 2019-20, the highest number since the late 1980s, and developers appear to have coped well with the pandemic.”
Other infrastructure projects will help these targets, including the recent opening of two new stations on the Northern Line at Battersea and Nine Elms. The extension will unlock major development in South London (in addition to the jaw-dropping amount already underway in those areas).
From inflation to stagflation…
Whilst inflation was the watch word a few months ago, stagflation now seems to have replaced it. The prospect of high inflation with low growth. No doubt exacerbated by a fuel ‘crisis’ and the unwinding of Covid support measures in the UK. This appears to be a worldwide issue for all post-Covid economies looking to “build back better”. Soon we will see the real state of our economy and indeed the real state of our country, transformed in the past 18 months, as it comes into sharp focus post pandemic (which we are not actually out of yet…!) as most government support is quietly turned off. Universal credit top ups and VAT exemptions will also go.
Finally, I mentioned in the title to this piece a comment about what “real pressure” means. On a podcast I listened to recently, an example of a planning committee that had been tasked with ruling on the construction of the Large Hadron Collider and that had to consider the possibility that its operation could create a black hole that sucked in the whole planet was cited! A cool head was needed for that decision. Consider also the CEO of the Chinese property developer Evergrande, who is thought to be the most indebted developer in the world, with debts estimated to be in excess of $300 billion. Its bosses have already said that they are unlikely to be able to make a couple of key interest repayments now due. Shares in the group were suspended from trading today amid speculation it is poised to raise $5 billion by selling a stake in its profitable property management unit. This story continues to develop and will be closely watched.
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17/06/20212:2:1, 3:1:1, or 5:0:0: The right formation for the return to the office; and the rise of the retail partnership
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Daniel AbrahamsPartner, Co-Head of Real Estate
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