Has the office had its day, and what could that mean for your investments?

It’s a scene that’s familiar across Europe: spreadsheets piled up on the dining room table, laptop open on a kitchen worktop, and reports sitting on the sofa or the bed.

If this is familiar to you, it probably means that you are one of the millions of people across Europe working from home, as governments continue to battle Covid-19.

According to a report in the Guardian, more than half of those living in Belgium, Luxembourg, France, Spain, Denmark, Portugal, Ireland, Cyprus, and Italy was working from home last July. In 2019, the figure was just 5%.

But what will happen after coronavirus? Will employers across Europe want you and other employees to work from home? What might this mean for companies with large office portfolios and, ultimately, for your investment portfolios that include commercial property?

Read on to discover what the future of the office might be, and what it could mean for your investments.

Some major companies have committed to reducing office working – but not all

Banking group HSBC has said it will continue to encourage working from home, cutting its global office space by 40%. Its competitor, Lloyds, also announced it will slash desk numbers by 20% over the next two years.

But others, like Goldman Sachs, are now telling many employees to return to their desks, sending 1,000 employees back to their London office. Numbers are expected to rise further over the coming weeks.

JP Morgan has sent 1,800 people back to the office, according to Bloomberg, and theTelegraph also reported Barclays’ boss Jes Staley as saying working from home is “getting old” after he initially said there would be a permanent shift from the office.

It’s not only the world of finance that is favouring the office – a surprising advocate is Alphabet, the parent company of Google.

According to the Guardian, the company wants to introduce a hybrid working scheme in which employees will be in the office three days a week for “collaboration” purposes. The report adds that Alphabet has said full remote working is “off the table”.

The office’s days are not numbered yet

The office, it seems, may continue to be a central part of business infrastructure and identity, although the way offices are used could be very different going forward.

One reason the office is unlikely to disappear is the human need for interaction, something highlighted throughout lockdown.

The negative impacts of working from home have been well documented, including stress and anxiety due to a lack of social interaction, video-call fatigue, and feelings of isolation. These might be something you too have experienced.

And if you feel as though your working hours have increased while home working – you’re probably right.

According to a Eurofound survey cited by the Guardian, remote staff are twice as likely as office-based workers to exceed the EU’s 48-hour working week. Nearly a third of remote workers continue into their free time several times a week, compared with fewer than 5% of office workers.

It has become such a matter of concern that the European parliament voted overwhelmingly for laws to be consulted on, which would allow remote workers to disconnect outside their working hours.

The office is alive and well

In his report last year, Mark Callender, head of real estate research at Schroders, suggested it’s likely that social distancing will result in companies needing more, not less, office space in the short term.

He also feels it would be “premature” to assume that the office is dead. While he accepts some businesses may continue to work remotely, he expects many employers to return to the office – albeit less than five days a week.

He also predicts that growth in tech, life sciences, and professional services will continue to drive demand for offices in city centres and close to universities.

Another report by Investec predicts offices will be used by companies to attract top talent, with staff mixing working from home and in the office to suit their life and work needs.

A new way of working in offices means new opportunities too

Landlords and office owners have already started to react to businesses’ needs in the wake of Covid-19. Investec suggests that landlords could look for more bespoke, premium offices with more flexible contracts and state-of-the-art technology. A move towards rural offices could also happen, it states.

So, while the look – and location – of the office may change, it seems the long-term outlook of commercial property as part of an investment portfolio remains positive.

Commercial property company Robert Irving Burns believes so. In its blog from November 2020, it not only said there was no cause for alarm for commercial property investors, but added that “vital signs are largely positive, and look set to remain so after Covid”.

This is backed up by one report that said international real estate advisers, Savills, found commercial property transactions in Germany fell just 6% below the five-year average in 2020, and it expects 2021 to be busy.

One reason for this, the report explains, will be investors seeing a purchasing opportunity in the fall in some offices’ values.

And, while some offices will undoubtedly fall empty, there is already talk in some countries of using empty commercial buildings to create residential accommodation. For example, one ambitious project in France is looking to invest €1.5 billion in acquiring office buildings to convert into 20,000 apartments.

While commercial property portfolios are likely to change, this may also provide new, and potentially profitable, opportunities for investment portfolios.

Get in touch

If your investments have commercial property as part of its portfolio, and you would like to discuss the implications of this, please contact us at info@blacksancapital.eu.

Please note:

This article is for information only. Please do not act based on anything you might read in this article.

The value of your investments and any income can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances