The enormous increase in working-from-home (WFH) brought on by the COVID-19 pandemic has not hit productivity as hard as employers had initially feared. In fact, some companies report that remote-working tools such as chat apps and videoconferencing have actually helped staff become more productive. For their part, many employees say they do not miss the stress and cost of the daily commute.
Even though vaccination rates are rising and the need for social distancing is diminishing, both sides are keen to preserve what they see as more efficient ways of working. This poses new and interesting questions about where and how we’ll work and live in the years ahead.
This significantly increased flexibility is also likely to have wider social ramifications, including greater employee diversity, a better work-life balance and larger talent pools, as location and in-office presence become less important1.
Our Research analysts have identified three trends in how we live, work, and shop which could have a lasting impact on real estate.
COVID-19 is likely to lead to increased flexibility for both employers and employees, allowing people to work when and where they want, with the working week split between home and the office.
The findings of a Barclays-YouGov survey2 showed that about 60% of employees expect to work partially or exclusively from home, compared with fewer than 40% before the pandemic. Employers are twice as likely to encourage staff to spend part of their week working from home, on average expecting staff to work from home two days per week.
Source: YouGov survey, Barclays Research
New consumer behaviours could spell good news for providers of goods and services:
Greater focus on the home: During the pandemic, many people spent less on services, holidays, commuting, restaurants and bars and therefore have bigger savings pots. They are likely to spend this on buying (if they were previously renting) or improving their homes, which could go hand in hand with greater demand for DIY products, electronics, and home fitness equipment. Despite rising mortgage rates, US homebuilders have reported a rapid rise in demand for new homes since the end of 2020, in both suburbs and cities.
Increased car use: People may drive more, as longer commutes are replaced by shorter but more frequent excursions.
Bleisure travel: More comfort with remote work is likely to create demand for “bleisure” travel as people combine business trips with leisure or take advantage of WFH’s “work from anywhere” flexibility.
Office demand is likely to be 10-20% lower if a part office/part home working week becomes the norm. But offices will remain important as gathering places for social interactions, meetings, and training, rather than the process- and task-driven spaces of the past. This is likely to require new layouts: more meeting rooms, break-out areas, collaboration spaces and desk-sharing areas, along with permanent desks for those not working under part home/part office hybrid models.
Source: YouGov survey, Barclays Research
Incremental office demand likely to be lower: A growing workforce may no longer lead to an increased need for square footage, as new employees embrace the hybrid WFH model. This could break down the longstanding correlation between growth in employment and demand for office-space.
Smaller, smarter, greener: Employers will likely gravitate towards smaller, modern, high-quality and environmentally-friendly spaces. This was a trend already evident before COVID, but may now accelerate.
Location will be vital. Early on in the pandemic, there was speculation that office demand might shift to the suburbs, but our analysts believe those predictions were misplaced. As economies reopen, urban offices are recovering at a faster pace than suburban ones, and now have roughly the same amount of traffic as their pre-COVID baselines. And most critically: the centres of cities remain the easiest places to access for most people.
In 2020, several weaker retailers closed their doors, and even survivors reduced their locations as the drift to e-commerce was suddenly accelerated by social distancing. The most severe closures may be behind us, but there is still a significant change coming in how retailers operate. In the US, more than half of sectors increased their share of online spend from mid-March 2021 through to the end of April 2021.
Source: Barclays Research
Change of use: Physical stores will become smaller and take on new roles: showroom, brand enhancer, final-mile distribution node. Those roles will require different structures and locations, so more churn is likely.
Presence on the ground: Other features such as buy online/pick up in store, and using third parties for same-day delivery are also competitive advantages. Store presence, in fact, is such a vital part of the online experience that many retailers have found that when they close physical shops in a region, they can lose more than 70% of their run-rate online sales in that region (plus, of course, 100% of their offline sales).
End of the mall? The average mall now has a store vacancy rate of c.13%, putting them in danger of seeing a downward spiral of falling rents and tenant exits. However, malls that thrived before the pandemic are likely to have a better outlook.
One of the largest effects of the COVID-19 pandemic has been the enormous increase in flexible working, which is likely to have a lasting impact on how people use their home, office and shops. Some of the effects of these shifts are already visible. Offices in urban areas are beginning to be repurposed and retail stores are taking on new roles and functions. Other impacts will become apparent over time. But it is clear that flexibility and adaptability will be key to ensure real estate caters to the needs of individuals and businesses.
1 This is already becoming apparent: global insurer Zurich has seen an increase in women applying for and obtaining senior jobs since it introduced flexible arrangements for all jobs.
2 Survey undertaken in November 2020 of 4,300 office-based workers and >1,500 senior decision makers across six countries to gain a better understanding of how employees and employers view a return to the office post-pandemic
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