• Mark Callender, Head of Real Estate Research

WFH: Is it the death knell for offices?

One of the aspects of the coronavirus has been the sudden evacuation of offices and mass adoption of home working. As a result, some real estate investors believe the working from home experiment that’s taken place during this crisis will lead to a long-term decline in demand for offices.

However, Mark Callender, Head of Real Estate Research, Schroders, discusses why this assumption might be premature:

As South Africa prepares to move to advanced level 3 of lockdown in an aim to open up the economy further while still trying to contain the spread of Covid-19, thousands of workers will still find themselves working from home.

Millions of people across the world are now working on their kitchen table or sofa, using email and conference calls to communicate with colleagues and clients. The use of video conferencing services such as Microsoft Teams, or Zoom has sky-rocketed. The simultaneous collapse in air travel has meant that in May, the market capitalisation of Zoom – which only started in 2012 - passed that of the world’s seven biggest airlines combined.

The key question for real estate investors is whether this successful experiment with home working will now lead to a step change in occupier behaviour and a structural decline in office demand?

Fewer people, but more space needed

Of course, the need to comply with rules on social distancing means that companies are unlikely to cut their office space as soon as lockdown rules are relaxed. In theory, businesses might actually need more office space per person.

However, that assumes that companies can afford to rent additional space, which is debatable in the current economic environment. It also assumes that most staff can travel safely to the office without using public transport. That might be possible in Amsterdam, Copenhagen, Luxembourg, and Manchester where most people either cycle, or drive to work, but is unrealistic in major cities like Johannesburg, London, Paris, or Cape Town where, amongst other things, traffic congestion and limited parking means that the majority of commuters have no alternative to public transport.

Main method of travelling to work, by city

Source: Eurostat, 2017.

Instead, the real issue for most businesses is how many staff they can accommodate safely within their existing office. The answer varies according to the design of the building and whether floors are open-plan, or cellular, but space planners estimate that most offices can probably only safely accommodate between 25%-40% of staff.

In addition to social distancing, businesses also need to install hand sanitisers, remove landline telephones, arrange regular deep cleans and consider other measures such as increasing air humidity, upgrading air filters, adding more bike racks, temperature checks at entrances and mobile apps which track people within the building.

What about a “distant” future?

What will happen once the coronavirus is brought under control, either by a vaccine, or by an effective treatment? Will companies encourage staff to continue working from home and cut the amount of office space they occupy?

Recent headlines suggest some companies have already decided to downsize their offices. Companies have a big incentive to cut their office use. Bills for rent, service charges, utilities, are all meaningful costs. Staff also benefit by spending less on c