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David Lashbrook, CFA | 27 April 2020

COVID-catalysed structural changes
in global real estate?

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As a landlord and investor in real estate, I am closely watching how the world adapts to the global lock down. In our case at Momentum Global Investment Management, the transition from office to homebound working has been seamless. I wonder if this is going to cause a structural change in the demand for office space over the medium term as companies renew their current lease commitments and review their ongoing office accommodation requirements.

Several colleagues and many of my friends believe that they are actually more productive working from home because of the time saved in commuting and perhaps fewer distractions (unless you are locked down with a string of children under the age of five!) Vast improvements in video conferencing technology have enabled many meetings to be successfully held electronically; such meetings were exclusively held face to face only a couple of months ago. Some things, such as reviewing complicated spreadsheets (especially someone else’s spreadsheet!) are still clearly easier to achieve when sat around a table, but COVID-19 has definitely demonstrated that it is possible for many office-bound jobs to be effectively conducted from home.

A big factor driving future demand is how will companies approach their office accommodation strategy going forward? The most efficient layout from a cost perspective is an open plan design with rows of desks on a square or rectangular floor plate. Individual offices, whilst undoubtedly more productive because of the reduced interruptions, are much more expensive. And large common areas, such as board rooms which are used infrequently are the most expensive. Many short term flexi-office providers incorporate this principle in their business model – they reduce the amount of boardroom per person and they make sure that board rooms are used productively. In this way, they aim to halve the generally accepted space requirement of 10 square metres per employee to five.

However, one of the key factors in our successful transition from office to home working is that we are part of a team who we know well, like and above all, trust. This is something that cannot be easily gained (or long term maintained) by video conference. Integrating new joiners successfully will be very difficult to achieve electronically because the new employee needs to be valued. We are inherently gregarious creatures and the need to feel part of the team is strong. This is better done face to face. As an additional point, some people may simply be more comfortable and productive working in an office environment.

As investors, we need to constantly innovate and adapt to change. We are watching this trend closely. I think there will be a decline in demand for office space over the long term because of the improved ability to work from home. But, I believe this trend will take years, if not decades, to play out because of the length of existing office lease commitments. We will be ready.

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