Comment: The ‘new office politics’
The macro outlook for real estate suggests another tricky year ahead.
In late 2019, Brexit and the prospect of a Corbyn government spooked investors. This year it’s more Brexit, potentially a no-deal Brexit at that, alongside the unprecedented economic context of the Covid-19 pandemic.
While “beds and sheds”, the residential and logistics sectors, still remain attractive given the increase in house prices and demand for deliveries and storage over lockdown, other sectors like office space are likely to see a reversal from their previous positions, while retail looks set for continued difficulties as high street bankruptcies continue to gather pace.
London office space - alongside other attractive European capitals with diverse economies such as Paris and Amsterdam - was doing pretty well for investors at the beginning of 2020.
But London office space in particular, is now facing a protracted period of uncertainty given the much slower pace at which UK office workers are returning to their desks compared to their European counterparts.
Some companies are also finding the new arrangements suit them much better than expected, even where substantial investments in real estate has been made, such as with asset manager Schroders, which announced in August it would be allowing its staff to work from home indefinitely, despite recently moving into a state of the art HQ in Moorgate.
Bloomberg, on the other hand, whose eye-popping Foster + Partners designed HQ just near Bank Station won the 2018 Royal Institute of British Architects Stirling prize, and covers 1.1 million square meters to house 4000 employees, is rumoured to be coaxing employees back with stipend incentives to justify its £1bn cost.
The majority of white collar workers, who have comfortable working space at home, have been happy to work remotely over lockdown because their work-life balance has improved and they are saving money by not commuting and paying the daily ‘Pret-tax’. Companies in turn are happy because their workers are resultantly more productive. The new office politics – the battle of wills between the government and City workers and firms - will continue to be a major macro constraint on real estate valuations particularly as a second wave now seems assured. That may though change in winter, as workers realise their employers paid for most of their daytime heating.
In the meantime, while Central London and the City are still eerily quiet, the suburbs and its independent retailers have been enjoying a renaissance. The pandemic is forcing the economic redistribution of human and other capital out of London that has long been called for.
A lot of what happens next for real estate and the wider economic recovery depends on whether an iconic London address continues to maintain its prestige and, if so, if firms will continue to haemorrhage money to have a floor in The Scalpel or the Walkie Talkie or a flagship vanity project at 25% to 60% occupancy.
But recovery clearly cannot rest entirely on office re-openings alone, wider revenue for the City needs a lot more imagination for a sustainable pathway out of lockdown.