Alice Fontana

By: Alice Fontana
Topic:
Real Estate

I am sure we are all relieved to see life slowly returning to normal. High street stores, cafes, and restaurants are open again and offices are opening up too. But that’s not to say that working from home during lockdown has not left its marks: in fact, some HR directors believe that the five-day office week is a thing of the past. Which of course begs the question ‘how will this new way of working affect the demand for office space?’.

And yet you can read about the billions of euros of office properties coming to market, while other asset classes like retail and hotels suffer. Transaction activity is picking up and international investors continue to see Germany as a safe haven for investment, particularly when it comes to office.

So, is the impact of the homeworking trend on the quantity and quality of office properties being exaggerated?

We discussed this with a group of experienced industry leaders. To gather different perspectives, we invited tenants, investors, and developers, and had a mix of local experts (e.g. Berlin specialists) and those with a broader geographical remit

Productivity at home

Most agree that it doesn’t matter where people work as long as they are productive, but you do have to distinguish between people’s different roles. On the one hand, those who work very independently and don’t rely so heavily on communicating with their colleagues will be able to work from home for most of the week if they prefer. Though this will present some organisational challenges for managers on those occasions when they do need to get the whole team together in the office.

On the other hand, it is reported that in person meetings lead to more creative solutions than communicating over video calls. Even big brands like Google or Microsoft are concerned about the drop in creativity caused by a culture of remote working. And when it comes to productivity, are we in a position to judge how working from home compares to the office? For many organisations, the crisis has caused a reduction in workload to the extent that managers may not even notice a drop in productivity. With that in mind, it will probably be a while before we see the true extent of WFH’s effect on productivity levels.

Changes to home offices

Which brings us to the next point of discussion – will the home office be as we’ve experienced it so far, literally a room in your house? Not quite. During the crisis, we’ve had to make do with what was available, but if we are going to continue working from home in the long-term employers will need to make certain investments – contributions to employees’ WIFI and electricity costs, office chairs etc. Employers can also save money through desk sharing and reducing office space, but whether that will make up for the costs, especially in the current recession, remains to be seen.

Home office vs the office

How can you entice your workers back into the office? At the beginning of lockdown surveys showed that only 20% of respondents wanted to go back to the office. Since then many have started to miss the contact with their colleagues – morning coffees, office talk, and all the other social perks of office life. And of course, you have to consider not everyone has enjoyed these last few months working from home – lack of childcare and limited space being two of the main problems.

Despite all this, one HR Director with responsibility for 700 employees highlighted how difficult it still is to fill up desks in the office – of which there are far fewer given social distancing measures! It is clear that additional benefits must be offered to make the office attractive to employees.

Location is also a big factor. Employers with offices in top locations with connections to public transport will probably find it easier to bring employees back to the office than those with offices in the outskirts. Offices outside of the centre are considered significantly less attractive, which probably puts an end to the concept of satellite offices as a halfway house between the big hubs and home offices.

But location is not everything – office design also plays an important role, and in some cases, this will need to be significant updates. Gone are the times of single and group offices, but the same goes for densely packed open plan offices. The office must be a place to experience corporate culture, a place where you can collaborate with your colleagues. We need more meeting rooms and places to stimulate collaboration and creativity among employees. But you also have to make room for quiet spaces where people can recharge their batteries.

The challenges of remote leadership

The social side of the office took a hit during the crisis and managers faced completely new challenges: how do I lead a team virtually? Most were lacking these skills, as they’d simply never needed them. Most managers lead by being present in the office, very few have had to lead teams over long distances. One participant talked about training sessions that had been developed during the crisis to help leaders deal with questions such as: how do I nurture team spirit and corporate culture online? How do we onboard new colleagues remotely – especially those from the demanding millennial and Gen Z generations? How can I make sure that they build good relationships with the rest of the team and feel welcome? And how do I retain my employees long-term?

This topic has been covered in detail by my colleague, Emily Bohill, in this article.

Location, location, location

There’s no question that the trend towards working from home, accelerated by the crisis, will change how we work in future. What kind of impact will this have on office investment?

In principle, it’s simple: the more attractive the location and design of the asset, the more motivated the tenant and their employees are to spend time there. Our participants agreed that the clear winners are high quality, modern office assets in well-connected locations. Remote locations are definitely to be avoided. We are cautiously optimistic that rental growth in cities like Munich will remain steady. It might be the end of the road for the extreme rental growth seen in the Berlin market, but rents there are not expected to decrease either.

According to the leasing specialists taking part in our round table, they are seeing less demand for office space from tenants. It is likely that this is not only due to fears around covid but also wider economic concerns. However, the general assumption was that future office concepts with break out areas, communal areas, and quiet spaces will not have a significant impact on the total size of office space.

But these first class, revamped office buildings come with a hefty price tag and despite what some are calling the worst recession since World War II, discounts are not expected. Besides, to the astonishment to some of our experts, there are investors out there who will pay these prices. The CIO of a global investment manager commented, “If you don’t need to buy right now, I wouldn’t”.

However, many investors are feeling pressure to deploy capital. While private equity investors are waiting for a reduction in prices, capital-rich investors can be aggressive in this market. According to one participant that won’t change, resulting in a limited range of assets.

Changes in the workplace

So, what can we take away from a 90-minute discussion around the future of offices?

The covid-19 crisis has, as other crises have before, accelerated existing trends. Working from home has become much more popular, but that doesn’t mean that attractive, central offices no longer have a place. Quite the opposite – these assets are becoming more and more important and will continue to be used as hubs for collaborative work. The assets that may have more difficulty competing with home offices are less modern offices in remote locations.

The real challenge is the psychological and organisational impacts of the WFH trend. Leading and motivating remote teams and figuring out how best to communicate and work together outside of the office will take some adjustment. We look forward to our next round table which will hopefully shine some light on these uncertainties.

We’d like to thank our participants for this inspiring and fascinating discussion!

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