As the new Omicron variant causes havoc across Europe and nations reintroduce WFH and lockdowns, are offices under threat from new ways of working?
‘Working from home is not a new normal. It’s an aberration that we’re going to correct as quickly as possible.’
So said David Solomon, CEO of investment banking giant Goldman Sachs, during a virtual financial services conference in February of this year.
This month, such a stance was looking increasingly at odds with reality as the new Omicron variant of Covid-19 saw fresh working from home (WFH) orders issued by many governments across Europe, and most recently, England.
The volatile situation comes after months of a trend which saw workers returning to the office. By the summer, around half of Goldman Sachs’ employees were reportedly back in the office on a regular basis in New York and Hong Kong, while about a third of the 6,000 staff at its European headquarters in London had returned.
And by September, the London rate had risen to around 45% and the US bank was calling for a return to ‘full occupancy’, in line with ‘government and medical advice’.
Across mainland Europe, a similar picture of gradual return has been seen amongst big businesses as coronavirus restrictions were rolled back – although ‘full occupancy’ is far from the reality or the goal. Since mid-November, when many countries reintroduced restrictions or were thrust back into lockdown to deal with a fourth Covid wave, most workplace return plans have been put on hold.
The 50:50 approach
Despite this volatility, what is clear from all the initiatives coming out of company boardrooms, is that post-pandemic working patterns are set to change radically. The 9-5, five-days-a-week office routine, already under pressure before Covid, will be a thing of the past.
Employers are shifting en masse towards ‘hybrid’ or ‘flexible’ working models that allow staff to work two to three days from home and a similar number in the office.
Office workspaces will change as a result, as will the way employees interact with one another. ‘The enforced working from home has forced management structures to change and made people reconsider how they interact with their staff,’ says John Mulqueen, head of offices EMEA at CBRE Investment Management and responsible for a €9.5 bn office portfolio across the region. ‘Prior to the pandemic, management was typically suspicious of having people out of the office too much, as being able to see people felt like a better way of managing them.’
Now, he says, following an extended period of remote working, there is ‘more of a general acceptance of more agile working practices’. Dutch financial services giant ING is amongst those big businesses which was trialling new working practices in its home market before it was stopped dead in its tracks by new government-imposed coronavirus restrictions. ‘We started working in hybrid mode in the Netherlands on 11 October but have had to stop the pilot due to the latest government guidance,’ says a spokesman.
Ultimately, he adds, the aim is for staff to work in the office and from home on a roughly 50:50 basis. ‘But nothing is set in stone,’ he stresses, adding that the pilot scheme will resume once the Covid situation stabilises.
The bank employs more than 15,000 people in the Netherlands and 57,000 worldwide. Insurer Aegon, which employs 3,600 people in the Netherlands and over 22,000 worldwide, is likewise advocating a hybrid model across its European operations.
Up until the latest coronavirus restrictions, the firm was encouraging its Dutch-based employees to take a 50:50 home working/in-office approach, providing financial assistance with setting up an ergonomic workspace at home and a fixed monthly allowance to cover internet costs.
‘Our preference is that employees work from home for an average of 50%. However, if they feel they are more effective in the office, they are welcome to come in,’ says a spokesperson.
The firm uses digital and cloud tooling ‘to make documents and collaboration accessible for all employees’, whether working from home or in the office. In the UK, accountancy group KPMG reportedly told its auditors in early December that they would be expected in the office or at client sites four days a week in future after enjoying considerable flexibility to work remotely – even after Covid-19 restrictions were relaxed earlier this year. Senior auditors are said to have expressed concern that remote working could damage audit quality and limit learning opportunities for young auditors.
Work in progress
The transition to the hybrid model is clearly a work in progress, with employers trying out different approaches to see what suits their business best. ‘I actually think the most challenging period is coming now,’ says Mulqueen.
‘We had the period when everyone was working from home. And obviously we know what it’s like when everyone’s working from the office. The bit that’s difficult to manage is the hybrid model, because you already hear that there’s a different atmosphere to being in the room and not being in the room when part of the meeting is going on in-person and part is remote. I think that’s one of the biggest challenges and biggest opportunities, to try to reduce the friction between those two groups.’
Catherine Mann, a policymaker with the Bank of England, recently noted that being seen in person is also an important way for people to build careers and that working remotely makes visibility more difficult. ‘Physical presence does matter,’ she said during a virtual meeting about women working in finance. ‘We are not at the point where we can really have a “water-cooler conversation” in a virtual setting.’
The success of the hybrid model will also depend on factors like business size, sector type and corporate culture, says Mulqueen. ‘But there’s clearly an opportunity for employers to recognise that setting their staff up to work from home in an efficient way can be beneficial to them as a business.’
Brainstorm and socialise
What is also clear is that the purpose of the physical office is set to change. Rather than housing rows of desks in an open-plan area, the central office hub will in future function as a meeting place, a ‘clubhouse’ where workers go primarily to connect, brainstorm and collaborate. It will be a place where they find inspiration, ‘serendipity’, and above all, socialise with peers. For occupiers and landlords, this new paradigm will in many cases require a repurposing of office space.
Says Aegon: ‘The old approach of sharing and occupancy no longer makes sense. Aegon’s offices will be redesigned in such a way that we come to the office mainly to stay connected with the purpose of our company and to co-operate, to meet, to learn and socialise with colleagues and teams. Individual work can still be done at the office, but will primarily be done from home.’
The moves to update the office also tie in with the expectations of many employees, who after 20 months of working largely from home have had time to reassess what it means for them. A recent survey of 3,000 office workers across Europe carried out by workspace specialist Unispace found that nearly all (95%) wanted changes to their office space, with adjustments including access to both quiet and breakout zones, more amenities and more outdoor space.
The report, entitled ‘The Reluctant Returner’, also found that nearly two-thirds of office workers were reluctant to return to the office post-pandemic, with the commute, lack of work-life balance and an ineffective workspace, the main drivers hindering workplace returns. Despite this reluctance, there was a general consensus that a hybrid approach is the way forward, with 69% of employees expecting to be mainly office-based in the near future.
The data also indicated that younger generations are keener to return, with 69% of 18 to 34-year-olds wanting either a complete return or a hybrid approach that is mainly in the office. This, says Unispace, indicates a desire to not only learn from peers and accelerate careers, but also to benefit from the social and physical elements the office environment affords them.
Tempting staff back
Lawrence Mohiuddine, CEO EMEA at Unispace, says the survey shows employers clearly have to up their game and offer employees more than their homes provide in order to tempt them back. ‘While the global pandemic has undoubtedly changed the way we work, it has also changed how employees want to experience the workplace.
‘Those who have been able to work productively in a remote environment over the past year must see the value in returning to the office. Collaboration with peers is certainly a driver for some returnees; however, our study has shown that people want more than what they can currently access at home – whether that’s free lunch options or better amenities.’
A much-heard argument in favour of the need for top-notch work environments is the ‘war for talent’ – particularly in an economic upswing where fast-growth businesses are on the hiring trail.
Says CBRE IM’s Mulqueen: ‘The war for talent is in full flight. There is still a shortage of high-quality, qualified people and businesses want to employ them, and therefore they’re pulling on different levers. They’re offering them flexibility in terms of when they come into the office, high quality offices when they come in, they’re improving their situation when they’re at home – in every possible facet they’re looking for some effective way to be the employer of choice.’
He quips: ‘Some people are now saying: we’re no longer working from home, we’re living at work.’ For businesses too, there are clear benefits. Mohiuddine puts it this way: ‘The organisations that proactively look to create the most bespoke, purpose-driven and compelling working environments, will be the most competitive at not only attracting top talent, but maintaining a motivated workforce.’
Who is downsizing?
What impact will the new working practices have on real estate footprints? Reports of occupiers planning to downsize their office space post-pandemic have hit the headlines in recent months. In Germany, banks are understood to be cutting back on space as a rising number of staff work from home.
In Sweden, telecommunications company Ericsson has announced it is cutting desk space as it expects half of its 102,000 employees to work remotely after the pandemic. The company said it will redesign its 400 offices around the world over the next five years to reflect the new hybrid work reality. Under the plans, desk space will be cut from 60% to 20% to create more room for social and co-working areas.
In the Netherlands, Aegon expects to reduce its office space by around 30% over the next three years. ‘We expect to need fewer traditional workspaces, like a desk and a chair,’ the firm says. ‘After all, these places are only needed if we spend entire days working at a desk.’
To enable employees to make more efficient use of the existing office space, the firm is developing a new digital reservation system with occupancy sensors to book and measure the use of working desks, cockpits, meeting rooms and creative areas. ‘The office will be a place to meet with each other and for collaboration,’ explains Aegon.
Lease extensions
Mulqueen of CBRE IM, whose EMEA office portfolio spans 1 million m2 across 13 countries, says that with the exception of banks, there are few signs of occupiers reducing their office footprint in a meaningful way. ‘I think there’s a lot of speculation and lots of discussion around reducing floorspace, but we’re not seeing any real evidence of that in a significant way.’
Where possible, decisions on footprint are being deferred, he observes. ‘We’re seeing lots of instances where people are asking for a one- or two-year extension to their lease where a break is coming up now. So requests along the lines of: can we have a bit more time to think please?’ He adds: ‘In our view there is going to be a potential reduction of office space but it will not be very significant in terms of the actual footprint that is taken.’
‘Banks will reduce their footprint, they have been doing it for some time and will use this as a good moment to review their ways of working,’ he says. But many other businesses, such as knowledge-based industries or creative clusters, are seeking ‘more and better space’. Far more significant than a potential reduction of office space, according to Mulqueen, is the quality of the space being sought. ‘Occupiers are looking for workplaces that are better than home, to “encourage” their people in, rather than to “force” them in. That’s a really important point.’
He sees two trends emerging from this: occupiers in sub-standard premises which are in growth mode and seeking to attract staff will either refit and upgrade their space, or leave and move to better space. ‘I think the rotation rate in offices is going to increase because a lot of occupiers are going to say: this building just doesn’t cut it anymore and I’m going to leave.’
Market polarisation
As a result, the ‘bifurcation’ in the quality of office space will deepen, he believes, something that is already being reflected in occupier and investor demand. Across Europe, the hunt is on for amenity-rich, inspiring and sustainable offices, particularly in supply- constrained markets.
‘This bifurcation is real. If your space is low quality and you’re in a sector and location like a financial district that’s looking to reduce footprint then you are clearly at a disadvantage. The areas that are more interesting are the ones that maybe have either a life sciences bias or a creative industry where we’re seeing quite a lot of growth and which are recruiting more but also allocating more space per head to their people.’ Recent research on the London office market by property consultancy Gerald Eve supports this polarisation trend. Its findings on take-up in Q3 reveal further evidence of a two-track market, with demand intensifying for best-in-class space and softening for secondary properties.
Occupier take-up increased 30% to 2.8 million ft² (260,000 m2) in the quarter, driven by large commitments by major London occupiers. The firm said this growing activity suggests businesses ‘have a better understanding of the implications of hybrid working policies and are seeking out higher quality space that better meets their post-pandemic needs’.
So, are occupiers all rushing to cut their footprint to fit flexible working models? Not yet. But one thing is clear: the utilisation of existing and new office space is set to change irrevocably. Says Mulqueen: ‘People who are coming back to the office or moving to a new office in a year’s time will see that. When they walk into that space, they’ll think: this is very different to the space of the past.’
A pdf of the full article is attached below