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Home working will delay not kill office recovery

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by Aimee Donnellan via Reuters Breakingviews

Once bustling European office blocks resemble ghost towns. On the continent, some 75% of them are still empty, according to property experts. Blame working from home. The trend, much amplified by anti-Covid lockdowns, has created a new reality in the office rentals market. That reality favours users overs landlords. In the UK, the old standard of 10-year leases, with only upward rental adjustments, has been abandoned. Rental agreements are currently for as little as three years, according to a chief executive of a big British property company. Some owners are only able to get tenants by offering WeWork-style leases come with almost no notice period. Reluctant British tenants will be able to take further advantage of the weak market. After all, the country’s current average 4% rental yield still looks juicy in comparison to what is available in Berlin, which is a hotter market than London. And as developers look at the uncertain prospects, new projects are likely to be scarce for some years.

Companies like PwC and Twitter are suggesting that this is more than a down cycle in rents. They see a new era in which working from home is standard. Both the Big Four accountancy firm and the social media leader say the majority of their staff can work from home from now on.

More people out of the office all the time would mean less space and lower property costs. That is an alluring prospect for costconscious managers. But while offices may be expensive, they are still irreplaceable when it comes to training, team building, synergy and, often enough, efficiency Working from home has its own costs, and not only in communications equipment. In a Morning Consult survey taken on behalf of Prudential, over half of people working from home said they felt disconnected to the insurer. And many workers cannot be very productive at home, because of insufficient space or excessive distractions. Lower rents don’t necessarily presage a property revolution.

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