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Whilst covid has accelerated the speed of change with the implementation of mass home working, businesses were already alive to the need to adapt to increasing demands for a better work life balance.

As we start the transition back to normality, Sam Hodgkinson from DTM Legal LLP considers the lessons learned during 2020, the changing face of the commercial property market, the impact on business owners, landlords, and investors, and potential solutions and opportunities that may arise from this movement. How things have changed…..and fast!

2020 saw this slow adaptation that was underway progress at an unimaginable but necessary rate and scale to cope with a worldwide crisis. Homes were immediately turned into mixed use offices and schools; individuals worked alongside household members, or alone; meetings were held via online video; and social interaction all but disappeared. Businesses around the UK adapted working practices to conform with government guidance and to appease employee trepidation.

The trend of agile working has shown organisations that this style of working can be both productive and beneficial in terms of time, costs, well-being, and sustainability and has built a level of trust with employees that perhaps was previously lacking.

What should we expect next?

As restrictions are lifted, everyone is reflecting on lessons learned and attempting to navigate future patterns of work that suit all involved.

Surveys suggest that hybrid working is a preference for most with increased flexibility, trust, and choice. To be an employer of choice those preferences will need to be met.
The office will continue to be a key component of a business but will be used in a different way. The impact of 2020 will play out across the commercial property market over the next several years and we anticipate the main changes to property requirements will be:

The size of office space – there will be an emphasis on smaller “local” satellite offices to meet flexible working arrangements for those who do not wish to work at home. This will also have the added benefit of supporting business resilience and the risk analysis benefits of dispersing employees over a number of smaller locations. We fully expect businesses to retain a “city” presence but on a much smaller scale.

The location of the office space – as organisations consider the impact of covid from a financial perspective and their requirements, they will wish to benefit from cheaper rents, parking, and employee satisfaction with the current norm of minimal commuting and avoidance of public transport and busy locations, a level of decentralisation will occur. Demand in key regional markets will continue but we are also likely to see the ‘work near home’ concept, with businesses considering space in commuter and peripheral towns and business parks.

The type of office space – the “new” office will be a hub for collaboration, creativity, relationship building, and mentorship. Space will have to reflect this new style whilst also ensuring people feel safe and secure in their environment.

Changes are likely to include:

  • Fewer desks and more social space with facilities to entice people to attend – perhaps an extension of their home.
  • Temperature scanners, on-site medical facilities, division screens, automatic release doors and other hands-free devices.
  • Building materials and office furniture with antimicrobial properties
  • Investment and implementation of smarter systems to facilitate home working; communication; interaction; and monitoring.

Occupancy requirements – this will be lower as a result of both i) slower take up rates of new premises, as businesses are reluctant to take on new liabilities in uncertain times, and ii) a reduction in existing occupancy requirements where businesses try to alter (or are forced out of where payments cannot be met) their current arrangements to mitigate costs.

Sustainability and environment – The positive impact of recent changes on climate change and sustainability has increased awareness and demand for buildings, facilities, and cultures that reflect these principles. Businesses will want to piggyback off the recent benefits from changing working practices in light of the green industrial revolution, minimum energy efficiency standard, and positive environmental obligations.
Property owners, investors, and occupiers will have to innovate to adapt and survive in the changing market.

We believe there will continue to be demand for high quality, well located buildings that satisfy both environmental, social, and corporate governance, in addition to wellness factors for enlightened corporate occupiers, who may now pay a premium for this type of property. We may see a downturn in new “quality” office space with reluctance to proceed with economic uncertainty – however, get it right and this could be a real opportunity for some developers.

We instead expect focus on thriving markets such as industrial space, affordable housing, and healthcare where budgets will remain. Other patterns which may arise include the acquisition of less sought-after office space by investors waiting for the market to correct itself; office space being re-purposed; premises being altered and adapted by owners or occupiers to fit in with evolving requirements.

As occupiers attempt to mitigate outgoings in uncertain times they may be able to meet new demands by underletting part of their premises, exercising break options, or attempting to negotiate a surrender of existing arrangements. We will likely see an increase in landlord’s re-entering premises as a result of tenants being unable to pay their rents. However, as we have seen over the past twelve months, landlords will often have to take a commercial approach to their portfolio – considering the right circumstances to take action will always be difficult.

The relationship between landlords and tenants, although evolving in recent years, will develop further with greater emphasis on partnership and service delivery, and the flexible occupancy industry coming to the fore.

Final thoughts

While the accelerated shifts in the commercial property market provides opportunities to effect change that will ultimately benefit our economies, communities and the environment, for some time to come there may continue be a high degree of uncertainty and risk for investors and occupiers. For those who adapt fast and challenge the old norm there will be opportunities to thrive.

To discuss your Commercial Property needs contact Sam Hodgkinson on 07842 306146 or email sam.hodgkinson@dtmlegal.com

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