Why offices should learn from the lesson of retail
Arriving at P-THREE’s central London office this week, and noticing how much busier the West End is right now compared to just a few months ago, it occurred to me that thanks to the combined effect of multiple factors, including Brexit, climate change and Covid, the once apparently impregnable central London office market is facing headwinds that are likely to result in substantial structural change. Of course, this isn’t a totally unfamiliar situation. We have been here before – just with a different sector. In 2016 the retail market was facing a similar challenge. The details were different, but the overall picture was the same.
…in the same way that the imminent death of retail as a whole was grossly exaggerated and ultimately incorrectly predicted, so I believe the same will be true for offices…the period of change for offices can certainly be less fraught than it has been for retail, as workspace transitions towards a perhaps two-tier future, where corporates will continue to occupy prime quality space, but smaller organisations fashion ‘team townhouses’ from existing/period premises for team building and break-out sessions.
The one advantage the office market in 2021 has is the potential ability to take on board key learnings from the retail sector’s experience. Here are P-THREE’s top five:
Learning 1: Customer knowledge. Understanding occupier requirements will become more important than ever for investors and their advisers. Property professionals will need to better understand the underlying drivers that will attract people to their workspace. I’m convinced that offices are moving away from simply housing people to becoming spaces where people generate ideas collaboratively and learn new skills. To facilitate that means ditching traditional open plan offices and exploring new ways to use similar types of space differently. In retail terms this is the equivalent of, for example, moving away from traditional department store space to next-generation f-hubs.
Learning 2: Sustainability. The Greta Effect means a whole new generation of office workers is rigorously asking questions of their surroundings. Inspired by young activists like Greta Thunberg, they are demanding that the same environmental standards apply to workspaces as to residential locations. The backlash in the retail market following the unsustainable nature of home delivery packaging could be repeated if/when office employees become more informed about the level of emissions generated by their office buildings. A proactive industry-wide collaborative process needs to take place over the next decade to create genuinely environmentally-friendly workspaces and in the meantime highlight genuine improvements as they occur.
Learning 3: Flexible pricing. Office occupiers are balking at long leases that tie them into substantial financial commitments when their workforce requirements are becoming ever more changeable. The retail sector has embraced shorter leases and is actively exploring alternative rental models. Forward-looking office investors could wisely follow suit for buildings that include workspaces.
Learning 4: Flexible use. Space that can be used as offices part of the week and then transformed, quickly and easily, for alternative use will challenge the orthodoxy of single use office space. Investors who help facilitate that change are likely to be well rewarded.
Learning 5: New content. New generation workspace that provides exclusive experiences for employees (say, holographic music events at lunch times/after work) foster employee desire to come into spaces where they can productively interact with colleagues. Investors need to ensure that occupiers who want to gain competitive advantage by providing this kind of content have high quality connectivity as standard in their buildings. As we know, a retail destination without content is now one destined to struggle.
While virtually all office locations across the UK will need to flex during this period of significant change, I think it’s important to recognise that change is by no means synonymous with extinction, as some as the more lurid headlines might have us believe. Bear in mind that the total office stock of London alone totals around 200 million sq ft. The office market is not about to expire. Even in a world of home and hybrid working demand will continue, not least because some functions can’t easily/securely be moved to domestic properties.
That doesn’t mean the challenges ahead aren’t real. With MEES regulations removing around 20% of central London’s office stock at a stroke in 2023 and further energy performance-related restrictions a distinct possibility, the days of old-fashioned offices are certainly numbered.
But in the same way that the imminent death of retail as a whole was grossly exaggerated and ultimately incorrectly predicted, so I believe the same will be true for offices. By grasping the five learnings outlined above, the period of change for offices can certainly be less fraught than it has been for retail, as workspace transitions towards a perhaps two-tier future, where corporates will continue to occupy prime quality space, but smaller organisations fashion ‘team townhouses’ from existing/period premises (also a likely sustainability win) for team building and break-out sessions.
Ultimately, however, there is a large volume of space that will probably never be occupied as pure offices again. Not that long ago high streets up and down the country were coming to terms with the realisation that many retail units would never be used in the same way again. If the office sector can pick up just one takeaway from that scenario it is this: redundant office space should be seen for the opportunities it can create, rather than the purpose it is no longer fit for. It has taken far too long for some to realise that ex-retail stock (from former high street retail units via department stores to whole shopping centres) can be successfully repurposed and assist with existing regeneration aspirations.
The transformation of redundant offices – to desperately-needed residential space (something it is particularly well suited to, as P-THREE has previously pointed out) and associated retail and leisure facilities, for example – could happen relatively smoothly and painlessly. And it could create some amazing spaces as it does so. The retail sector learned the hard way. The office sector doesn’t have to.
This article first appeared in Estates Gazette: https://www.egi.co.uk/news/the-office-sector-must-learn-from-the-pain-endured-by-retail/
Article by Hannah McNamara, Co-founder P-THREE
Photo credits: Unsplash
