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Structural changes in the office market after COVID-19

uk

As Denmark is gradually reopening after the COVID-19 lockdown, employees and businesses are returning to a new normal – a workday with a stronger focus on health and safety (social distancing) as well as a call for more flexibility during the week (working from home). In this article, we take a closer look mainly at two demand parameters that we believe will greatly impact the future office landscape during and after the coronavirus outbreak. 

In order to contain the COVID-19 spread, a large portion of Danish public-sector workplaces were temporarily closed down on 11 March 2020. Many private-sector businesses followed suit, disrupting the daily routines of many businesses and employees. In other words, Denmark’s largest homeworking experiment was launched – and quite successfully, too. 

Structural changes in office occupational demand

Because of COVID-19, we have seen the following two opposing structural changes, which are believed to influence office occupational demand:

1) higher homeworking rates (working outside the office)

2) workplace safety

In order to limit the risk of infection and maintain a certain degree of social distancing, it may be necessary to increase office floor space per employee and rearrange the office. This may involve utilising excess space, installing protective screens between desks, automatic doors, having fewer chairs in meeting rooms and staff dining rooms, putting up disinfectant dispensers as well as introducing a “clean desk” policy to make daily cleaning a priority.

An increase of the area requirement per employee goes against the long-standing and prevailing general office market trend of shrinking area requirements, e.g. when laying out open-space offices. In addition, many businesses have discarded the “one employee, one desk” tradition in favour of fewer workstations and free seating.

Unlike many other countries, however, Denmark has a relatively strict working environment authority, ensuring that businesses comply with comprehensive working environment regulations, e.g.:

  • The size of the room where the designated workstation is placed must be at least 7 sq m and the ceiling height at least 2.5 metres
  • As a general rule, the floor space per worker must be 12 cubic metres
  • There must be a minimum of 110 cm free space behind the front end of the workstation
  • The workstation must be clearly separated from workplace circulation routes. 

Irrespective of the working environment requirements listed above, the area requirement per employee varies considerably, depending on line of business. For instance, the area requirement per employee at a law office is markedly higher than the area requirement per employee in a sales office, which, all other things being equal, would make it easier to maintain social distancing at the law office.

In view of the already exacting working environment requirements, it is fair to assume that businesses, in the short term and on a certain scale, will try to increase the area requirement per employee within the boundaries of their existing premises to maintain social distancing. This may be done by putting into use inefficient and secondary areas, establishing office areas with a certain distance between desks, etc.

Longer term, the effect of a COVID-19 vaccine or effective treatment will kick in, triggering a downtrend in the area requirement per employee and therefore a return to the former trend. Nevertheless, in several instances we have seen staff health, well-being and safety becoming high-priority concerns, which could mean that the area requirement per employee will not bounce back to quite as low a level as seen before the COVID-19 crisis. In addition, the stronger focus on health will increase the demand for contemporary office leases that meet user preferences in terms of indoor climate etc. 

Homeworking here to stay
 
Even prior to the COVID-19 crisis, many employees desired more flexibility and more freedom to organise own workloads. Working from home is therefore by no means a new phenomenon, but many businesses have been averse to implementing higher homeworking rates, mainly because they were uncertain if productivity and commitment would be impaired.
 
Before COVID-19, approx 7.8% of employed persons aged 15 to 64 often worked from home (source: Eurostat), whereas about one in five worked from home sometimes. However, the frequency of working from home differed depending on line of business. Persons employed in the “Information & communication” industries have the highest number of homeworking days, followed by those in the “Financial & insurance activities” category. It is also in these sectors that some businesses have been very successful in implementing homeworking on account of COVID-19. For instance, some of the largest pension funds have announced that they plan to introduce higher homeworking rates encouraged by the highly successful outcome during the lockdown.

Many businesses have been pleasantly surprised to learn how quickly and efficiently their employees have embraced new technological tools, e.g. video conferencing and other forms of digital co-working. This also applies to the businesses that used to be reluctant to open up for homeworking.

Consequently, we may conclude that homeworking most certainly is here to stay.

The function of the office

Although several workflows may be handled outside the office, the value of a well-functioning office environment cannot be exaggerated. An office provides a business with an identity and the possibility of creating its own culture. This helps to attract and retain employees. The office therefore functions as a place where employees can collaborate and groupthink, which in addition to social contact improves products and services for the benefit of the clients.

Just like the pros of teleworking have come to the fore during the COVID-19 outbreak, the importance of the office has been underpinned, too. COVID-19 may well have been a catalyst for an increase in homeworking, but the crisis has also uncovered some of its shortcomings. In a knowledge society, the key to success for a business increasingly lies in physical interaction, co-working and knowledge-sharing.

Without physical interaction, businesses face the risk of their values and cultures eroding over time. Without a physical office, it is difficult to carry out talent programmes and mentoring. We therefore believe that the office’s function as a vital base will remain a key competitive parameter for staff recruitment and retainment.

Substantial benefits to be reaped from homeworking 

However, there is no doubt that higher homeworking rates could be a win-win for employees and businesses alike. In a global survey by Colliers, many employees state that they would like a larger share of the working week to be homeworking days in order to improve their work-life balance. The outcome may be improved well-being and reduced sickness absence. Furthermore, in terms of transport alone it would be possible to save a lot of time, in particular benefiting employees living in suburban areas.

From a business perspective, more homeworking may pose an advantage in terms of labour recruitment. In theory, it is possible to widen the recruitment base as it will probably be easier to hire new employees living further from the workplace if they are not required to be present at the office every day.

Demand for up-to-date office space keeps getting stronger 

We expect that the COVID-19 crisis will accelerate already prevalent office trends, including the rise in homeworking days, mainly to accommodate employee preferences for more flexibility. However, most employees will still need/want a connection to a physical office. As a result, we foresee no dramatic decline in future office occupational demand relative to pre-COVID-19 levels.

As the office of the future will be a place for co-workers to meet, be inspired and exchange ideas – and not merely to man a desk – we expect a stronger focus on the location, indoor climate and flexibility of office premises.

The trend will therefore predominantly favour contemporary offices in prime locations – the very same product that already today sees demand outstripping supply.

As a result, functionally obsolete properties and properties in secondary locations, today already bearing the brunt of the existing vacancies, will suffer even more.