Will the post coronavirus corporate and business landscape mean more office space is needed to maintain greater social distancing in the workplace? Or will companies cut the size of their offices and have more staff working remotely, either part of the week or predominantly?
It’s a big question for anyone investing in commercial property funds and not one with an obvious answer. Experts and analysts asked to make a prediction are split down the middle on the future of the office and if more or less space will be used by companies in future years.
It will be some time before what the answer eventually turns out to be becomes clear. But in the meanwhile, it of course makes sense for investors to watch for clues. And one arrived this weekend after Matt Sinnott, the Lloyds Banking Group’s people and property director wrote in a memo that the financial institution expects to “need fewer buildings and different types of spaces” post-coronavirus crisis because of “changes to the way we work”.
While Mr Sinott’s comments may be a worry for major commercial property landlords hoping the office market will bounce back to go some way to compensating for the impoverished retail property market, Lloyd’s position may be as influenced by other banking trends the Covid-19 pandemic is merely accelerating. The transition of banking to a more online format had anyway been gathering pace.
However, it does look as though that evolution is likely to be speeded up, with Mr Sinnott referring to the lockdown period as “a great opportunity to repurpose our office to reflect new work styles”.
The review being carried out by Lloyds into its real estate footprint may see some offices close but no firm decisions have been made at this point. The current state of the review as still very much in its preliminary phase was made clear by Mr Sinnott’s caution:
“This is new for us, and we don’t have all the answers right now, but I hope it will give us an opportunity to reset and improve the way we work.”
Lloyds was already making moves to consolidate its office premises in six regions, including London, southwest England and Scotland, pre-pandemic. In 2017 the bank cashed in on its Gresham Street City HQ by selling the building to China’s Hengli Investment Holding on a leaseback deal.
Banks and other large financial institutions do of course represent the largest market for prime City of London commercial property. A contraction in the amount of space they let would have a knock-on effect for the wider market, even if other sectors do not follow the example. But REIT and commercial property fund investors will be keeping a close eye on developments over coming months.
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