The "Walkie Talkie" building at 20 Fenchurch Street in the City of London.
PwC Forecasts Major Reduction of UK Office Space
The UK's biggest companies plan to reduce their office portfolios by up to nine million square feet, or the equivalent of fourteen Walkie Talkie buildings - the 37 floor high rise on London's Fenchurch Street, according to PwC.
The figures from the company's most recent Occupier Survey of 258 of the UK's largest corporates show half of the survey sample expect to reduce the size of their real estate portfolio and, of these, one third believe they will reduce their office footprint by more than 30 per cent.
The findings indicate there is likely to be a sizable fall in occupied office space. Only 10% of those questioned agreed that the level of employees working from the office will return to pre-pandemic levels. Despite taking into account mass vaccinations, around half of the senior executives surveyed believe employees will continue to work virtually two to three days a week.
71 per cent of respondents plan to increase investment in technology that enables agile working over the next two years.
Appetite for implementing '(sub)leasing models' and exploring partnership models such as occupancy linked leases is low among respondents with the majority having no plans to introduce them in the future.
For organisations with more than 100 employees, 51 per cent have a real estate and workplace strategy that considers the long term impact of COVID-19.
Angus Johnson, UK Real Estate Leader at PwC UK, comments:
"The figures couldn't be more clear, the shift to hybrid working, with part of your time at home and part in the office, is pretty much embedded into the working culture of many organisations. So much so that a significant proportion of the businesses we spoke to are planning to reduce their office portfolio, which could lead to up to nine million square feet of vacant space.
"However, it's clear that the role of the office is not going to disappear. We may see an increased demand for flexible space as many businesses operating models may well need that option if holding dead space is to be avoided. It’s also clear that the nature and purpose of office space is going to change.
“As occupiers seek new, different space to meet their accommodation needs, environmental aspects will be increasingly important. If the real estate sector is to truly succeed as a more dynamic, greener industry it's imperative that creative thinking comes to the fore."
Industry sector trends
Across industry sectors, the Occupier Survey findings show that just over half of all respondents said that virtual working has had a positive impact on productivity in their organisation.
However, within the financial services sector, fewer firms see virtual working as having a positive impact on productivity (48 per cent positive impact compared to 55 per cent overall) despite almost 9 in 10 disagreeing that office working will return to pre pandemic levels. In comparison, organisations within the government and public sector see virtual working as having a positive impact on productivity (70 per cent positive impact versus 55 per cent overall).
As mentioned, half of the organisations surveyed think their organisation will reduce the size of its real estate portfolio and of these, one third believe they will reduce by more than 30 per cent. For financial services firms, 60 per cent of respondents said that they will reduce their footprint with 59 per cent expecting it to reduce between 21 to 40 per cent. For organisations within the government and public sector, 57 per cent said they will reduce their office footprint with 60 per cent expecting it to reduce between 11 per cent and 30 per cent. Within the consumer markets sector, only 28 per cent of businesses stated that they plan to reduce their office footprint (against 50 per cent overall).
Over three quarters of respondents said they are likely to reconfigure existing office space with 43 per cent of financial services firms stating that they are extremely likely to do so as a result of the pandemic. Within the consumer markets sector, 62 per cent of businesses also plan to reconfigure space stating collaboration as a key driver. Being more agile for future disruption was also cited as a key reason (60 per cent versus 47 per cent overall).