While doomsayers’ predictions about a collapse in commercial property values and a more long-term move to work from home as organisations scrambled to reduce their footprints and cut rental costs was a real concern in the middle of the pandemic, it seems that is not now being borne out.
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Commercial property consultants and estate agents are instead predicting an adaptation of offices with increased amounts of meeting space compensating for the reduced headcount in the building. We take a look at what the future might hold for office property.
CBRE property consultants act for occupiers and investors coming into the market looking to buy or lease real estate. Marie Hunt is an executive director with CBRE, who works with a lot of the large multinationals on the lookout for premises.
“At the very beginning of the pandemic demand for Dublin offices was at its highest level ever. You’d normally lease about 250,000 sq m in Dublin in any given year and in March 2020, just before Covid, demand was at 430,000sq m. When Covid happened there was a very dramatic fall off as big companies that had requirements to expand or to move to new premises put that on ice, and instead focussed on their core business. We saw a significant fall off in demand,” Hunt says.
In the last three quarters the company has been closely monitoring the market and staggeringly it’s back up at around 400,000sq m once more.
“It’s almost like a V shape if you look at it on a graph. People are looking for buildings they are going to go into in the next year to two years and a lot are going into new builds that are still under construction and there’s a long lead-in time.
"Take Salesforce for example. Their building is under construction in the Docklands. The announcement was made two years ago but staff have physically yet to occupy the building. Companies are looking for space they will need in the future, and that tells us employers are confident they are still going to need offices," she says.
While there will be a return to similar-sized buildings, the configuration of the offices will be quite different. This is consistent worldwide, and Hunt says – being part of the CBRE network – they are hearing of this across the globe.
“It was probably going to happen eventually anyway but Covid has exacerbated it and more firms are looking for some sort of blended working model where you have people in two to three days a week, or people working from home or in some third place the rest of the time.
“Configuration has had to change up to now as we are still doing social distancing, but going forward you’ll see more open plan space and collaborative space because the functions will be slightly different. Where staff need quiet time for writing or reading, they may well do that work remotely. Where they need to collaborate or have meetings or connect with colleagues, that will be done in the office. It’s not going to be rows of desks anymore,” Hunt says.
Hot-desking – where staff members do not have an assigned desk because they will only be in the building on a three-day week basis – will become more the norm. “You find a desk and plug in. We had brought it in just before Covid as we had done a refurbishment of our own space and it works,” she says.
Shane Duffy, founder and owner of ClickOffices, which lists over 800 serviced offices in Dublin and London, says before Covid the years 2018/2019 were their best ever, with companies looking to rent floor by floor on medium- to short-term leases, or license agreements. These were mostly for scale up companies of 25 to 30 people.
“They are very popular and this flexible market will grow, it will take away from the more traditional lease model. There’s a lot more uncertainty out there. The Googles are not the market, it’s the SMEs with 10-20 staff.
“A scale-up tech company can’t really tell its head count. For example, we had one that went from two to 200 in a couple of years and they went through three serviced offices with us. Jobs are being announced all the time, and these types of companies are going to go into flexible office spaces.”
He says that demands in terms of the “extras” businesses look for when choosing a premises have also changed. “Free beers and gyms, that’s all airy fairy. People want to know if it is clean, is it Covid-friendly with good ventilation. Who is looking after it and cleaning it.”
Hunt agrees that health and wellbeing has risen to the top of the requirements list. “We have a chart that ranks what is important to occupiers. When we looked at it three to four years ago people wanted gyms and concierge– that’s gone to the bottom of pile. They now look at the ability to open windows, or does it have a balcony.
“Flexibility has also moved up – companies don’t know how many people they are going to have in five years’ time so why would they want to sign a 20-year lease? They’ll happily keep HQ but if they need to expand they won’t necessarily need a new building, they’ll just put people into flexible office spaces.”
She says the same goes for start-ups that don’t know how much space they’ll need, and existing companies also want to be flexible. “They don’t know how many will come back full time or the patterns of days, so they would be foolish to commit to a long-term lease right now.”
Duffy mentions Dropbox studios – the company has 17 offices worldwide but they are not used as traditional work spaces. “You go in to collaborate and then they will pay for a co-working space close to your house. You’re going to see more of that.”
Meanwhile the design and the materials used in buildings is changing and will change, with a lot more touchless technology being put in place and microbial finishes, as opposed to soft furnishings, in terms of the walls, floors and seating.
While there was some hype about a drop off in commercial property prices, Hunt says this has not come to fruition.
“After the global financial crisis the supply/demand balance was completely different because we were building a lot of offices and over the last number of years that building had been curtailed because funding wasn’t there for development. This time we didn’t find ourselves at the same volume of stock so when the music stopped we didn’t have the same level of oversupply.
“There was some softening in rents because there was less demand but we didn’t see a wholesale fall of 40-50 per cent like we saw after the financial crisis. To date we’ve seen about a 10 per cent fall in rents and they’ve been stable for the last three to six months. The next direction is upwards so that’s probably been the extent of the fall,” Hunt says.
She says in the last three months business has been brisk. “There’s a lot of big requirements out there. For example, TikTok’s signing on the docks is imminent, and they recently announced another big requirement in Dublin. You have all the big tech occupiers planning to take on more people.
“That’s the strange thing about the pandemic, supply stopped as well because sites shut down so schemes due to be finished are now six to nine months delayed, so it’s causing frustration for companies. Had that happened in the past it would have been dramatic but now they can jump into flex,” she says.
Meanwhile, the lack of employees in office spaces is having a huge knock on effect on the rest of the economy. Richard Guiney CEO of Dublin Town, says footfall is down Monday to Friday – a trend since the pandemic began which can safely be ascribed to the lack of office workers.
“It has shown us how integrated the sectors in the economy are, and retail and hospitality do rely on the office workers. To attract good quality employees a vibrant town centre is important – they like to be able to have lunch, or pop down and do some shopping. There is a dependence between the sectors.
“We’d like to see them returning, and my own feeling is a hybrid work model may well work for retail and hospitality. Those in three days a week are not out every day spending in the city, they might only be out once or twice so if they’re back those three days we will recover. They’re the days people will arrange a lunch or go for drinks after work.
“At the moment we’re still down but last week footfall was up to 80 per cent of 2019 levels, so that’s encouraging. However 85-90 per cent would be a better position to weather the storm,” he says.