Office market set to split on quality lines

Stewart Taylor, a senior director with CBRE in Edinburgh, said the amount of office worker footfall through cities and towns will “undoubtedly vary” daily from Mondays to Fridays. When lockdown restrictions are lifted, he believes it will likely take another year before firm patterns are established as employers experiment with what works best for their businesses and staff.

“It’s difficult to say, but my gut feeling is that on a Friday, for example, you might see 60 per cent of the number of workers passing through compared to before the pandemic, rising to maybe 75% or 80% on a Tuesday or Wednesday,” he said.

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The knock-on implications of this for shops, restaurants and other city centre firms that rely on passing trade are obvious. Tracy Black, director of CBI Scotland, said there is “no doubt” the pandemic will have a lasting effect on how people live, work and consume.

“Increased flexible working and working from home is clearly here to stay,” she said. “Both deliver huge benefits in terms of reducing time lost to travel, promoting work-life balance and lowering stress, without harming overall productivity.

“But that doesn’t mean that the era of the office is over. From training to collaboration, having a physical space to bring workers together remains an important part of working life.”

Prior to the pandemic, full-time UK employees worked an average of four days at the office. Mr Taylor said CBRE expects that number will move “quickly” to three with the widespread establishment of hybrid working.

The proposed Met Tower redevelopment in Glasgow

This will undoubtedly lead to some businesses downsizing as leases lapse or come up for renewal, but in Scotland Mr Taylor expects that to be tempered by the fact that many organisations had already pared back on floorspace in the years after the financial crisis. And though 92% of businesses across all sectors questioned by CBRE in its occupier survey at the end of last summer said they expect to adopt some form of home working when lockdown ends, the appetite for communal working remains.

“In a nutshell what we have seen from a high level during the last 12 months was that in the beginning, a lot of people were saying that working from home works well, the employees really like it, and so forth,” Mr Taylor said.

“But what we have seen more lately, particularly through the winter, is that there has been a swing back in the other direction. People don’t generally want to be working at home by themselves for five days a week.”

David Cobban, head of Savills in Glasgow, said regional variations will also play their part. He believes there will be more of a push from staff to get back into the office in cities with a younger demographic, such as Glasgow.

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“Whereas in London, if you look at the demographics there and the longer commute times, it could be a different situation,” he said.

There is currently 1.42 million square feet of office space under construction in Glasgow, but 80% of that has been pre-let or pre-sold. As a result, rent levels for prime office space are said to be holding up reasonably well.

The problems will arise around those buildings that are no longer relevant to the market. Mr Cobban said this “flight to quality” means that although firms may downsize their city centre presence, they want the space that they do have to be of top condition.

“It is not about creating office space that people need, it is about creating space that people want,” he explained. “So I think you are going to see a real split between higher quality space and that of a lower grade.”

Impression of proposals for a new development at 177 Bothwell Street, Glasgow

This could exacerbate what Mr Cobban said was already an over-supply of lower-grade premises in Glasgow prior to the pandemic. Along with the many empty shops left behind by retailers that have gone bust during the past year, these buildings will need to be overhauled for a new and different purpose in life.

“It is a lot of re-purposing, but I find this quite an exciting catalyst because it will speed up a process that was already needing to happen,” he said.

With no indication yet as to when lockdown restrictions might ease, thus allowing staff to return to the workplace, it remains difficult to predict the extent of excess capacity. A further unknown is how much tenant-controlled space – also known as grey space – might be returned to the market by businesses looking to rationalise their property footprint.

“We are actually dealing with some grey space now,” Mr Cobban said, “but we have not seen a lot overtly coming through as yet because some occupiers are nervous because they fear it could generate bad publicity.”