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Working from home is terrible news for landlords

Once the pandemic is under control, this shift will be welcomed by cost-cutting companies and staff who dread the daily commute.
Image: Bloomberg

Early on in the pandemic, reports of the death of the office appeared greatly exaggerated. But as Covid-19 lingers, and second infection spikes dot the global map, something is changing in how employees and employers view the workplace: It’s being seen as an option rather than a necessity for many white-collar workers.

Once we get the pandemic under control, this shift will be welcomed by cost-cutting companies and staff who dread the daily commute. But for the owners of commercial property — already reeling from the move away from brick-and-mortar retail — the consequences may be severe. The market values of commercial real-estate companies, such as Land Securities Group and British Land, have plummeted.

This isn’t just a question of tech workers at Alphabet, Twitter or Facebook taking the relatively straightforward step of doing their stuff from home. All kinds of companies are making the same calculation. Alan Jope, boss of consumer goods giant Unilever, doesn’t see workers ever returning to offices 100%. Swiss bank UBS Group says a third of its employees could keep operating from home.

With property being a big business cost, employers would love to cut their space. Burberry Group a British luxury company, is exploring whether it can save money on its offices outside the UK.

Analysts at UBS assume that, on average, working one or two days a week at home could become the norm. That would have big implications for office vacancy rates, which have a close correlation to rents. In London’s West End commercial district, for example, more home working — together with an impending recession — could mean the vacancy rate rising from 3.3% in the first quarter of 2020 to just over 10% at the end of the year, according to UBS. It might still be 11.5% in 2022, the bank said.

The real crunch won’t come immediately. Susan Munden, an analyst at Bloomberg Intelligence, notes that commercial tenants are tied into leases, and there are heavy costs in exiting rental agreements early. At the biggest European real-estate firms, average leases are four to eight years.

Better news for the property industry is that it will be able to reuse commercial space as residential developments assuming people still want to live in cities once the pandemic ebbs. By cutting supply in this way, UBS estimates that the West End office vacancy rate could stabilise at 5.1% by 2025.

And the office won’t disappear altogether. While Zoom does well enough for the more transactional elements of work, there’s no substitute for face-to-face interaction when collaborating on a creative project, building trust with clients or mentoring staff.

Yet landlords will have to work harder. Tenants already wanted modern, environmentally friendly buildings with good quality air, outside terraces and facilities such as bicycle storage. Covid will accelerate this trend.

Real-estate providers like Derwent London — known for stylish buildings including the White Collar Factory in Shoreditch, which boasts a rooftop running track — may be better placed. British Land has taken note of the change, refurbishing parts of the flagship Broadgate estate it manages in London. Gecina SA, a Paris property specialist whose mission is to “design, build and manage living spaces to enrich the experience of our customers,” saw its net-asset value rise in the first half of this year.

Even as offices lose staff to home-working, they may need to retain space to make sure desks can be kept the right distance apart. Given more stringent hygiene requirements, hot-desking might be less desirable. Meanwhile, if the office is used for more collaborative work, more room might be set aside for meeting areas. British Land is already seeing demand from companies seeking short-term overspill space.

Tenants’ greater desire for flexibility — whether that’s through shorter leases or monthly rent payments — will nevertheless be a challenge for landlords, who need some certainty to service their own extensive borrowings. In the Covid era, such long-term guarantees are in short supply.

© 2020 Bloomberg

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The working from home thing has made everyone reevaluate status and is good for the environment and sellers of of tracksuit pants.

I don’t think it works at all.

I have been dealing with Old Mutual and Nedbank on Urgent matters and what normally takes about 2 weeks has taken them 2 months to complete.

Useless and they will loose many customers this way.

Its like being locked up. People are not made for that. It will blow over.

Maybe landlords will soon have to supply more space to allow for social distancing.

Work from home is nonsense.

For some people yes, for others no. We’ve expanded during lockdown and employed people. Even though we could have gone back to office 100% in L4, our management noticed the increased productivity and reduced operational costs at the office. We now have a policy in place for after lockdown and the majority of our company will be working form home 4 days a week.

More dynamic companies adapted better to this and you probably don’t get worse examples than insurers and the old-guard banks.

If their tardy performance was blamed on lockdown they were possibly being dishonest. Nedbank is absolutely hopeless IMHO. Example; a new credit card. You have to go into a branch to activate it – absolutely no internet or telephone options offered, evn in covid times. Closest branch is closed; covid they say but still people working there. Next branch has a queue out of the building but no sign of additional staff or effort. I need the card so visited four branches; two closed, two overflowing. Madness and little wonder they have a covid problem – let people bank remotely!

FNB seem much more on the ball.

Likewise with Nedbank who want me to go into a branch. Not a chance!

If they want to operate online then they have to do it completely and efficiently. Not my prime bank.

Turn office building into apartment blocks.

Zoom meetings are a bit like social media.
They allow people to say things they wouldn’t dare say to your face.

I disagree. Zoom meetings are monitored during working hours.

In SA going to the office will recover even though an option of working from home will be easily acceptable. SA have electricity issues and most offices have backup. SA mostly also have no respect with regards to noise( high radio volumes) quite irritating and disturbing for service center environment and for online meetings!
The turn around time also for customer queries is terrible in this lockdown period. It has gone worse !

Overall i think working from home outweighs the office. In the office environment there is often no reward to work faster and more effective, you still have to do your 8-5 like all the suckers. Not to speak about office politics etc etc.

Some people study 8 hours for an exam and others 4 hours and get the same result, the same applies to office hours.

Some people are more productive at night and some in the morning. Working from homes caters better for that.

I appreciate the benefits of work from home, but I hope things return to the office environment when we are eventually safe from Covid, because I have experienced the worst, slowest (and seemingly indifferent) service from employees working from home in the financial services industry during this time.
I think most people are more productive with a physical eye over their shoulder and there is more synergy in a team that is physically in the same space.

Another factor is document handling and authentication, systems and organisations requiring ‘original’ documents and signatures need to reengineer a bit. Not much use couriering documents to an empty office. And printing two copies of a PDF so that one can be certified as a copy of the other is plain daft.

End of comments.

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