- Nearly half (45%) of businesses with office space planning to downsize in the wake of COVID-19 – while 18 per cent already have done so
- Long-term changes to working practices mean 18 million square feet of office space will become redundant over the next five years1 – equivalent to 18 percent of UK office square footage
- Those looking to downsize offices are set to decrease floor space by 40 per cent on average
- Most common reasons for downsizing include increased numbers working from home in the wake of COVID-19 (29%), businesses taking cheaper premises (24%) or seeking accommodation with less desk-space per head (13%)
Almost half of UK businesses with office space plan to reduce their estates within the next five years, with COVID-19 driving businesses to remodel their working practices.
According to research by global risk management and insurance brokerage Gallagher among 1,000 business leaders, the flexibility brought about by working from home, is set to bring permanent changes to the way we work. Nearly half (45%) of businesses with office space intend to downsize by the end of 2025, while a further one in seven (18%) have already downsized since the start of the pandemic.
The research estimates around 18 million square feet of office space will become redundant in the next five years – or 18 percent of all current square footage in use – having a profound impact on the way UK cities look and feel in the process. The move is set to save businesses with office space an estimated £45,430 each per year in rent.
UK businesses will also be looking for shorter, flexible leases – as well as utilising co-working spaces such as WeWork, with 12 per cent intending to use these locations more often instead of an ‘owned’ office. And for those businesses planning to stick to the office, 13 per cent will look for accommodation which has less desk-space per head as the office’s main function is set to shift with more space for collaboration such as break-out areas and meeting rooms.
The five day office working week is set to become a thing of the past. Prior to the pandemic only 5% of the workforce worked remotely2. However, more than two-thirds (68%) of businesses have made or are planning to make changes to their working from home policy, including a third (33%) having already implemented policies to have staff attend in person four days a week or fewer.
The findings are likely to add pressure on commercial landlords who are potentially facing reduced retail portfolio values if demand drops, however the office will still exist in some form for many as among those downsizing only three percent are planning to completely close their offices. Furthermore, the reduction may be offset by previous oversubscription to city based offices lets, and the number of businesses that are looking for more creative modern spaces.
Commenting on the findings, Jon Phillips, Real Estate Managing Director at Gallagher UK Retail said “The restrictions on office-based working due to COVID-19 have made businesses rethink the space they need. The majority of businesses interviewed planned to keep some kind of space, but the role of the office is changing, with time in the workspace mainly spent collaborating or attending meetings. Clearly many businesses will continue to need space for storage of equipment and the housing of IT. However, we are seeing a long-term sea change in terms of employee attendance five days a week.
“Businesses need to consider the insurance implications of the changing use of the office if they are making significant renovations, changing usage and also any changes in the environment nearby. Renovations could mean a change in risk profile that insurers will need to know about, as will the business owner planning to use an office for a different primary usage going forward – such as storage.
“Furthermore, if the local area changes and there are large numbers of empty office or shops nearby, this presents an increased risk and real estate owners of offices that are unoccupied, should speak to their insurance broker to understand the impact on their cover.”
1. A September 2020 report from Savills suggests that in total, there is 101.7 million sq ft of occupied office space in the UK. (Currently, there is a total available office supply of 11.3 million sq ft in the UK, with the regional vacancy rate at 10%. This implies a total office space in the UK of 113m sq ft, at 90% occupancy – equating to 101.7m sq ft of office space.) Gallagher’s December 2020 dataset, collected by 3Gem found that 44.6% of business leaders with office space said they plan to downsize within five years. This group plans to downsize by 40.4% in total. It follows that 44.6% x 40.4% x 101.7m is the total amount of space to be ‘downsized’ – an estimated 18,324,713 sq ft.
2. CIPD https://www.cipd.co.uk/knowledge/fundamentals/relations/flexible-working/during-COVID-19-and-beyond
