BRICKS & MORTAR: The office isn’t dead but it is evolving

BRICKS & MORTAR: The office isn’t dead but it is evolving
By Clare Nuttall in Glasgow September 29, 2020

From the demand for logistics space caused by booming e-commerce to the slump in hospitality, the coronavirus (COVID-19) pandemic has had a seismic effect on the real estate sector, and the office segment is no exception. Lockdown forced an immediate shift to working from home for anyone that could, and even after a vaccine is found, this appears to have led to a change in approach to remote working and the function of the office. This in turn is expected to have an impact on both the volume of office space required in Central and Eastern Europe (CEE) and elsewhere and the type of space. 

Some of the questions facing companies and those in the real estate industry are what the split between physical and virtual will be in the workplace? What role will offices have, i.e. what will we go to the office to do? These questions were raised at the CEE Property Forum on September 23, held as an entirely virtual event this year, as participants from many countries in the region aren’t able to enter the host country Austria due to quarantine restrictions. 

Tamas Polster, head of strategic consulting EMEA, international partner at Cushman & Wakefield, who delivered the afternoon keynote speech, believes we will continue to have offices but they will be very different from those before the “radical shift towards digital” during the pandemic. 

“The pandemic has taken trends that are 15-20 years old the ability to work from home, the use of decentralised models and now there is a slow reverse of the paradigm that office work has to be delivered from a physical core location,” Polster says. 

Indeed, a survey by Cushman & Wakefield survey cited extensively by Polster shows that the experience of remote working during lockdown was highly effective in breaking down resistance to allowing employees to work from home. Even under less than ideal conditions namely, working with kids home from school working remotely didn’t result in the slump in productivity many expected. For their part, 90% of employees said they felt trusted to carry out their tasks from home. 

“The initial results of our survey show companies have been operating pretty well. It’s easier for big international companies because they have the culture, the technology, but even SMEs are starting to operate pretty well on a remote basis,” says Polster. 

Surprisingly, it is the older generation many of whom were in management positions and previously resisted calls from their employees to work from home pre-lockdown that adapted best. By contrast, the tech-comfortable generation Z, relatively new entrants to the workforce, were struggling as they missed out on receiving on the job training and bonding with colleagues. 

While many industries still require workers to be physically present, work in other sectors and specific functions were showed to be possible remotely without too much disruption. The large business services sector in CEE, for example, has felt relatively little impact from the shift to home working. Overall, for work traditionally carried out in offices panellists said they expect a hybrid solution, with a mix of remote work and face-to-face time. 

And the offices themselves will be changing. Hygiene has of course become all important spurring the expansion of companies like Resysten, a Hungary-based producer of protective coatings now in demand from a wide range of sectors, or Connectome.ai, a Russian app developed to check if people have washed their hands properly. 

Among the changes noted by panellists were more open space and more flexibility in layouts for example to allow meetings of different sizes while maintaining social distance and to allow shift changeovers without mingling between two separate shifts. 

Adrian Karczewicz, head of divestments CEE, Skanska Commercial Development Europe, says his company was “quite well protected” ahead of the pandemic, as the company had already developed an app that allowed people to move around its buildings operating lifts and passing from the office to the car park, for example using their mobile phones. 

Polster speculates on a shift to quality as the function of offices changes. People will still need to go to the office, for example to receive training and meet with their colleagues. But they will spend less time there, and offices may be smaller. As a result, says Polster, “We expect a shift towards quality for both the building and its location … the core hub might need less square meterage and that could be traded off for a higher quality environment or building. The trend was already there but now it is accelerating.”

Office space providers can also take comfort from the fact that some sectors, notably tech and pharma, are expanding rapidly in CEE, and are thus in need of more space to accommodate more workers under socially distanced conditions. 

Paul Hallam, managing partner, GalCap Europe, gives the example of a building in his portfolio given over wholly to labs and pharma companies. “If we could replicate that we would, as there are virtually no issues at all, aside from the standard requests for additional cleaning. They are all taking their own measures anyway. As tenants they are ideal, and this helps offset problems in buildings heavy on gastronomy.” 

The tech sector is still going strong too. “Tech employment is exploding further and there is still a massive push for recruitment of digital talent,” says Polster. 

“There are a lot of opportunities for [the] real estate sector, [especially] in CEE, which still a region with [significant] growth in white collar employment. But developers to have to be more careful about where they locate their product, what they offer for increasingly mobile and location-agnostic employees and employers.” 

There is some debate at the moment about whether we are seeing a permanent departure from offices, that will leave city centres bereft, or if people will be back once a vaccine has been discovered and rolled out. 

Polster says it will be difficult to bring people back, and success in doing so will depend on what the city and the individual development has to offer. He says urban centres remain attractive, including some regional cities but this depends on the quality of life they offer. By contrast, he adds, “places and buildings designed and operated as nine to five workplace are really at risk”. 

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