“The contract between society and business has changed forever. The office will become a convening place where you get teams together, but the work will be done in people’s homes.”
By Nick Corbishley, for WOLF STREET:
One of the UK’s largest outsourcing companies, Capita plc, which employs 45,000 people across the country, has just done what many other companies have been thinking and talking about doing since the virus crisis began: it announced that it is permanently closing more than a third of its offices. As a result, the leases on almost 100 workplaces will be terminated.
Like many large outsourcing companies in the UK, Capita has been struggling for years. It did not collapse and get liquidated like erstwhile giant Carillion but its share price has collapsed 97% since 2015. Even before the virus crisis began, the firm was exploring ways of slashing costs, including embracing more flexible working practices such as work from home, which the lockdown pushed to the fore. The company says that employees are firmly on board with the changes.
“Following dialogue with our employees it has become very clear that they would like to work in a more flexible way, which will involve increased working from home, but they will still spend a significant amount of their time working from offices that are based in the heart of our local communities.”
Although the office may not have completely lost its raison d’être, its role has changed dramatically, says Capita’s CEO Peter Harrison: “The contract between society and business has changed forever. The office will become a convening place where you get teams together, but the work will be done in people’s homes.”
A large number of British workers appear to be happy with this new reality. A recent study by researchers at Cardiff University and the University of Southampton found that 88% of employees who worked at home during lockdown would like to continue doing so in some capacity, with 47% wanting to do so “often” or even all the time.
The explosion in working from home sparked by the lockdown has mostly affected higher paid, better qualified workers, in particular those living in and around London. According to the study, their work hasn’t suffered much as a consequence of the change. Around 41% of the workers surveyed said they got as much work done at home as they did before the lockdown; 29% said they got more done at home, while 30% said their productivity had fallen.
The UK continues to significantly lag behind mainland Europe in getting workers back behind their desks. Analysis by the Center for Cities think tank found that just 17% of working people had returned to work in the UK’s 63 largest cities by early August — unchanged from June when the lockdown started to lift. If you include smaller towns, roughly a third of white-collar workers had returned as of mid-July, half the proportion as the rest of Europe, according to Morgan Stanley. In France 83% of white-collar workers had made it back to the office, while in Italy it was 76%.
Here are three reasons I can think of why WFH is still so dominant in the UK:
1. Avoiding commuter hell. Commuting is not much fun in most places, but it’s particularly hellish in the UK. And loads of people do it: 48% of the workforce living in and around London commute to and from work — more than any other EU region, according to Eurostat’s last report, published in 2016. And they pay through the nose for the privilege, shelling out up to five times as much of their salary on commuter passes compared to the rest of Europe.
In most cases, the higher prices do not correlate to quality. Overcrowding, regular cancellations, poor punctuality, safety concerns and ever rising prices are a constant feature of rail travel in the UK. Driving is also hugely expensive, especially in London where drivers face a £15 congestion charge.
People working from home now have a lot more time on their hands as well as more money in their pockets. With so much uncertainty on the horizon, not to mention the threat of catching covid on the way to work, is it any wonder that they would rather keep toiling from the relative comfort of their own home?
2. The lockdown lag. Thanks to the government’s flip-flopping at the height of the pandemic, the UK went into lockdown later than most of its European counterparts. It also emerged a few weeks after most other countries. As such, it could be argued that UK workers are slightly behind the curve in their return to work, though the lack of progress since the lockdown was lifted might suggest otherwise.
3. School still out. Unlike some places in Europe, such as Germany, children in the UK are only just beginning to go back to school. By the end of this week, most schools will be back in action, freeing parents up from their diurnal childcare duties and allowing them to finally venture back into the office, which they will duly do in droves. At least that is what the government and many business associations are banking on.
4. Many UK businesses embrace WFH. They stand to reap significant cost savings, particularly on office rents. They’re also fearful of being sued for damages if a worker does catch the virus on their premises.
A recent BBC study found that 50 major UK employers had no plans to return all staff to the office full time. A couple of weeks ago, the investment firm Schroders, which opened a new 260,000 square foot state-of-the-art facility in central London in 2018, became the first UK company to tell its workers that they can work from anywhere, as long as they work their contracted hours and days.
This flies in the face of recent government pronouncements that workers need to return to the office as quickly as possible. But with the virus still doing the rounds, it can’t even get its own workers to comply. According to The Times of London, just one in ten officials have returned to two of the government’s most senior departments, largely due to resistance from unions amid fears that a second wave of infections is around the corner.
As office workers stay away from the office, whether out of choice or company policy, the businesses that traditionally depend on their custom — the cafes, restaurants, bars, hair salons, retailers, travel companies and the like — are falling through the cracks. One of the biggest high street food establishments, Pret a Manger, has unveiled plans to cut 2,900 jobs amid slumping sales.
Between March and June, London’s hospitality sector lost £2.3 billion in foregone lunches and after-dinner drinks, according to the Centre for Economics and Business Research (CEBR). If the WFH revolution becomes a long-term fixture, almost half a trillion pounds in lost output could be wiped out over the next five years.
Commercial property owners are feeling the heat. According to the latest edition of CBRE’s Central London Office View, take up of new office space in Central London slumped to 331,100 sq ft in July, down 43% from the June total and 79% on the July 2019 total. There were just 19 transactions during the month, the lowest number seen in over 20 years. In Central London, the vacancy rate rose to 5.7%, from 5.2% in June, the highest level since 2010.
No one in the sector is immune from the fallout. Property development and investment giant British Land, a 164-year old bastion of the British establishment, is on the verge of suffering the ignominy of falling off the FTSE 100 after its shares tumbled 40% so far this year. They are down 75% from their all-time peak in 2007. Its long-standing rival, Landsec, until recently the UK’s biggest property owner, is not far behind. Their combined market cap is now dwarfed by Segro, the UK’s biggest warehouse owner and — thanks to the boom in ecommerce — one of the beneficiaries of the current crisis. By Nick Corbishley, for WOLF STREET.
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