Firstly, let’s look at the WFH data. What appears to now be more widely accepted is that without a collapse in the labor market, WFH is here to stay, with employees demanding the flexibility that this provides.
Considering the US market, Hines reports that while 70% of the world’s workforce is back in the office, the US lags behind at around 50%. While much is made in the press of the big tech and finance companies demanding that their staff be back in the office, the data tells another story with employees in the IT, finance and insurance sectors having the highest level of WFH days, approaching nearly half the week.
Further supporting the longevity of this phenomenon is research from Nick Bloom, a Stanford economist, showing that rather than a return to the office, there has recently been a further uptick in WFH in the US.
While Remit Consulting reports that the level of WFH is around the same in Continental Europe as it is in the US, the UK is higher with an average of three days each week at home.
So, if the level of employee-driven demand is now more stabilized, and employers have worked out how to accommodate the peak mid-week demand, what about the supply side of the office space equation?
I recently wrote about the remarkable level of regeneration activity, with offices being reinvented as residential or other accommodations, but five years on from the start of the pandemic and with interest rates having done their best to further dampen developer exuberance, the supply of new office spaces is also now starting to fall in many markets.
While the current situation is certainly bad, with Moody’s reporting that more than 20% of office space in the US is now vacant, the highest level since they started recording it 45 years ago, the situation is not universal.
The ease of the commute and the attractiveness of the destination, both with respect to the quality of the office accommodation itself and the surrounding area are vital considerations. Just as the Grand Central submarket of New York, with its busy train station, has become one of the hottest markets, London’s West End office rents are rising.
It could be time for investors to take another look.
Written by Philip Churchill, first published in Islamic Finance news Volume 21, Issue 43 dated 23rd October.