This article was co-authored by Neha Gafur, Paralegal, London.
Introduction – the storm
With non-essential shops now open, the future of the workplace remains at the forefront of employers and employees minds. The emphasis of remote working with limited need to be in the office may pose serious questions on the requirement to retain premium office spaces.
The vaccine is successfully being rolled out and there is hope that the pandemic will be under control in the near future. However, the unpredictability of our ever changing environment means employers have to consistently consider their options with regards to office spaces, and to ensure they are complying with government rules, tier systems and social distancing.
There’s no place like home
For the last year, both employers and employees have been able to experience first-hand that remote working can function just as effectively as being in the office, as a result of an efficient IT infrastructure. However, as expected, home working comes with its benefits and drawbacks. Some may find their productivity has increased due to the absence of a long commute, whereas others may find it difficult and isolating to work from home. With most of the world having adapted to this way of working life, it would be a near impossible task to revert to exclusive office based working. Whilst there will not be a complete end to office working, we will see a more flexible and hybrid work style with a mixed percentage of remote and office based working.
The evolving landlord and tenant relationship
The pandemic has raised serious questions regarding the landlord and tenant relationship. Businesses facing economic downturn have looked to re-negotiate their current leases to accommodate the future workplace, including the need to reduce space.
Lease re-gearing has been used to alleviate the financial impact many tenants and landlords are facing. It is used to renegotiate existing lease terms and is a collaborative approach to combatting the impact of COVID-19. Re-gearing provisions include reduction on service charge payments, rent-free periods, changes to rental payment dates, the inclusion of break rights and the granting of reversionary leases.
For many companies, remote working has meant a large office may be surplus requirements. Legal advice should be sought at an early stage as to available options to exit a property. Where there is an option to exercise a break clause, it is imperative that conditions attached to the break are satisfied in order for it to be effective.
Whilst some parties seek to re-negotiate or, if possible, exit their current lease arrangements, many are seeking to take advantage of the climate with lower rents per square footage. Short or longer term office lets in city centres or rural based hubs (‘neighbourhubs’) closer to employee homes may be sought (by employers and/or investors) to secure and cement the future and more space required to allow for expansion in the next decade. Any new lease being negotiated is likely to include rent suspension clauses, which will safeguard against any future pandemics including the ongoing COVID-19 situation and any variants or new strains of the disease. These clauses will seek to postpone or suspend annual rents and service charge during any future lockdowns which prevents a business from opening and/or trading.
There will always be a need for offices but not in the traditional sense. Hot-desking is likely to become the norm for a more flexible work environment and, as we work towards minimal printing and electronic files, reduced filing cabinets and photocopiers allow these spaces to be utilised in different ways.
Landlords and tenants may consider reconfiguring existing office spaces. Over the last three decades we have transited from individual office spaces to open plan. Open planned spaces during a pandemic has meant occupancy has had to be limited. Leading commercial real estate companies have begun designing socially distanced work places and are running models to demonstrate how this will function in reality, such as one way system mechanisms, distance between workstations or a hub of enclosed office spaces. Many companies have also recognised a more crucial focus on health and wellbeing as a result of the pandemic. This means office spaces that provide better air quality which compliments the race to zero objection, access to greater open spaces for employees to work together and outdoor space. Additional facilities to encourage other methods of transport such as cycling will also become more attractive. The driver of returning to the office is to have face to face collaboration. This may mean having more meeting rooms not just for clients but for colleagues to allow team working specifically on those days they are in the office. Connectivity is the key word here. These spaces will need to have the right IT infrastructure to allow flexible working so that people can work alone or as a group.
Further consideration should also be placed on better utilisation of existing spaces. Landlords and tenants may consider repurposing space by creating hybrid offices with collaborative work stations and break out areas. We have already seen reception areas in office buildings expanding to provide drink and food facilities and light and airy seating areas. Another approach is opening regional hubs closer to where employees live to avoid health risks on public transport and busy city centres. This will also allow shorter commutes into the office. All of these proposed changes may entice more employees to return to the office and permit smaller groups to work collaboratively without any significant health risk. We may also see a sharp rise of multi-tenanted buildings to meet the demands of the changing market. Reports suggest that there was a sharp increase in London’s office market in the final quarter of 2020 with pent up investor demand as confidence in the office market returned due to the rollout of the COVID-19 vaccine. This reinforces the belief that we are not quite ready yet to close office doors permanently.
Whilst there may be a decline to occupy office spaces, we could see a shift to redevelop and convert offices to residential spaces, by taking advantage of permitted development rights under the new Town and Country Planning (General Permitted Development) (England) (Amendment) (No.3) Order 2020 (SI No.756).
Due to the success of remote working, the pandemic has escalated employers to reconsider the purpose and nature of the workplace and how best to achieve a work-life balance for employees. Whilst we are likely to see a dramatic change, this is not the end of the office but a new era of the workplace as businesses seek to engage employees face to face and encourage learning, collaboration and innovation in order to foster post pandemic business growth.