The start of the year saw confidence return to the commercial property market following the outcome of the Brexit vote and the subsequent “Boris Bounce.” Today, that confidence has been replaced by uncertainty as we face up to unprecedented economic conditions as a result of the Covid-19 pandemic. A global recession is upon us from which there is no concerted plan for recovery, nor within any predictable timescale.
The effects of lockdown have hit the construction sector particularly hard with output reportedly down 40% in April, and only a limited “bounce back” is expected for the rest of Q2 once the data has been analysed. The UK Government has implemented a whole series of measures to support the economy in the short term; including the furlough scheme, selected cuts in VAT and a property stamp duty holiday. Longer term, significant investment is promised in large capital building programmes. However, it’s uncertain what will happen when the short-term measures come to an end or what the longer-term play-out will be.
Before this current crisis, each segment of the commercial property sector was experiencing somewhat different prevailing market conditions.
The commercial office segment was improving, as investor activity sustained and occupier interest grew during Q1, particularly in London and the prime regional locations. The industrial segment was also in positive mode, principally in distribution and warehousing, driven largely by the demand in online retailing. Conversely, the retail segment and particularly high street and white mall retail were facing a declining and particularly challenging market.
Economists are currently debating alternative recovery scenarios such as a V, U, W or L shape, each with an alternative outcome for the economy. Whatever finally ends up as the letter and number on the Scrabble tile, current forecasts predict that the economy and the construction sector will not start to truly recover until 2021, and then only to regain the losses of this year.
What is emerging is that the impact of the Covid-19 pandemic has had a significant effect on the underlying market forces for each segment of the commercial property sector, either reinforcing what were the prevailing market trends or significantly changing their prospects.
It’s likely that the pandemic, with the subsequent lockdown and social distancing measures will leave a legacy of enforced and adopted personal behaviours that will shape our lives going forward. These could well be disruptors for the commercial property sector in the future. Having said that, some pundits have the view that there will be a short-term reaction and, once the Covid memory has faded there will not be much change longer term and the market will revert to pre-virus conditions.
In these uncertain times is difficult to predict whether there will be little change, some change or a significant shift in the way we look to our workplaces, shops, hotels and restaurants to provide the safe environment and experience that we now expect. Let’s just make some observations of the challenges that the sector faces.
The commercial office market faces some interesting changes as lockdown restrictions ease and people look to return to work. The first is how hygiene, social distancing and occupier wellbeing will be managed in the workplace. The high occupational densities we have become used to are enabled by agile working practices such as desk sharing and the use of common breakout and shared catering facilities. These practices may now be difficult to sustain and manage at an operational level and indeed be unacceptable to staff post Covid. In April the BCO published a briefing note entitled ‘Thoughts on Office Design and Operation’ after Covid-19, which set out some real challenges to the accepted norm of workplace design and utilisation. It will be interesting to see if these emerge as influencers in the short to medium term and whether developers need to reconsider what they offer to the workplace market in the future.
The second is the new-found popularity of working from home. During lockdown all non-essential workers were required to isolate and home work as best they could, enabled and supported by their employers. Whilst it’s difficult to replace the human interaction that takes place in a busy office, many have found home working to be beneficial, spending more time with family whilst maintaining high levels of productivity. This has been evidenced by several employee surveys which have found a high degree of support for working at least one day per week at home even when restrictions are lifted, and workplaces reopen. But what does this mean for the office market? Working one day at home equates to fall of approximately 20% in workspace requirement, so does that correlate directly to a 20% fall in office demand? Not necessarily if, as a reaction to the first challenge, that 20% is taken up by utilising space at lower occupational densities.
The third is the emerging appeal of satellite offices, where many employees work in suburban locations with a much-reduced core operation in the city centre – known as a hub and spoke strategy. This is a challenge for the large conurbations such as London, where people have become less comfortable with a long commute, travelling in and out of the city centre on public transport. The satellite office gives people a base which is closer to home that they can reach by car, bicycle or even on foot. Of course for the satellite office to work, its location needs to reflect where many of the staff live and not all will be clustered so conveniently.
For the industrial segment the pandemic restrictions have had both positive and negative impacts. Manufacturing was struggling going into the Covid outbreak and the lockdown and social distancing rules brought national economic activity to a standstill, which was mirrored by a significant fall in this segment. Conversely, although the restrictions had some impact on warehousing and distribution, the surge in on-line retailing during lockdown is likely to sustain and this segment is predicted to ride the post Covid online sales boom. This dichotomy is repeated when you add in the Brexit factor. Some international manufacturers are considering relocating operations away from the UK which will have a further depressive effect for factories and their industrial supply chain. However, new import and export regimes are likely to require firms to hold stocks of goods and supplies for longer periods and thus a need to build bigger and better automated warehouses.
The segments worst affected by the lockdown are retail and hospitality and, despite recent easing of restrictions, the acceleration in the decline we saw in our High Streets before the pandemic struck is likely to continue. Personal incomes have been hit by furlough and redundancy, thus reducing non-essential spending whilst shops, malls, pubs and restaurants are facing the challenge of maintaining social distancing and hygiene measures. The Chancellor’s recent summer statement which purported to contain measures to support and stimulate this sector was not particularly well received. Rather than temporary VAT cuts and eat out vouchers, sector figureheads were looking for measures that will sustain longer term, such as rent cuts/support and a wider economic stimulus to advance the return of consumer confidence. This is all against the backdrop of the continued rise in the popularity of online shopping which has prompted the retail sector to re-evaluate its offer towards a more mixed shopping, leisure, entertainment and hospitality experience.
Our Rise to the challenge
Faithful+Gould swiftly responded to develop an offering to help guide our clients through these uncertain times. Our Workspace team focus on the adaptions needed by people, property and technology in order to create a Covid-19 secure environment for working in.
The Workspace team carry out a thorough assessment of the property itself to identify improvements to increase compliance, while maintaining a working environment that is enjoyable to work in. Building systems and layouts are reviewed and optimised to reduce the risk of harm to those using them. To encourage people back to work, the workspace still needs to help people to excel as well as being safe. Our team establishes both collaborative space and workstations that are appropriately spaced apart to comply with regulations.
Buildings have not been designed with social distancing in mind, and a full refurbished layout may be out of the question due to financial concerns of the impending recession. Our team are able to help to identify cost effective solutions to any problem areas. Analysis will identify circulation routes that are heavily used, and where these can’t be avoided, then additional technological solutions may be required to mitigate the risk, or touch free features required.
Modifications to the workplace setting are only effective if those using the space are guided on how to make best use of them. One of the key functions of Workspace is communication and engagement with the stakeholders who will be using the spaces. Working with clients from both private and public sectors, we develop and implement plans for the integration of the workforce back into the office, identifying any priority workers with additional needs that need to be considered. The wellbeing of all staff is at the centre of the review of challenges in the office, with feedback welcomed so that the arrangements can be adapted accordingly to best suit their needs while increasing Covid-19 security. Regular clear communications are also critical to ensuring that confusion over the arrangements don’t creep in. Where necessary, a phased return of staff is managed to reduce the impact on resources both within the business and externally such as public transport.
One example of Workspace in practice has been the assistance provided to HM Courts and Tribunal services, which began with four sites in the west of England. In order to maintain then full time functionality of the courts, the client was faced with the requirement of additional space. F+G were asked to carry out a review of the existing spaces to create efficient social distancing, and to also find alternative accommodation for the hearings to take place.
F+G quickly pulled together a multi-disciplinary team to work effectively as a project team to identify and implement solutions. The team assessed the suitability of utilising existing alternative accommodation, such as libraries, leisure centres and office space, as well as the potential of additional temporary accommodation in car parks and warehouses to need the demand. An F+G led space audit enabled the existing facilities to work more effectively and in compliance with Covid secure guidance through alterations to the existing floorplates and MEP systems.
The sites are now back up and running safely, and backlog of cases has been reduced. This has led to F+G being requested to assess another 10+ sites for the client, with the potential for the national estate to be reviewed.
Faithful+Gould has risen to the challenge facing the sector through the development of the ‘Workspace’ solution. It has been developed with people as the main focus, to allow property and technological adaptions that will ensure that clients are able to integrate their workforce into a safe and pleasant working environment in a cost-effective way. Creating these environments will allow our people to collaborate together once more.