As I See It: Is the letting of new offices to Baillie Gifford evidence of an upturn in the market, asks TERRY MURDEN
Normally at this time of year the skies around Edinburgh are filled with the sight and sound of fireworks. The commercial property sector may feel it has good reason to resume the habit following the announcement of one of the biggest lettings of the year, assuming it is not a flash in the pan.
M&G Real Estate and QMile Group will certainly be delighted to have their first pre-letting signed up after fund manager Baillie Gifford agreed to take 280,000 sq ft at the long-delayed Haymarket development for its new head office. Indeed, the city will be relieved that this scheme is finally under way after 50-odd years wondering why a prime plot has lain derelict for so long.
The developers will now want to kick on, using the deal to lure other blue chip clients to the Norman Foster-designed project. There is hope that it signals continued growth in a sector nervously wondering if a combination of closures and downsizing will dampen demand.
The property sector is no stranger to boom and bust, but the widespread adoption and success of home working has prompted even those resilient to the pandemic to rethink their office requirements.
A recent report in the Harvard Business Review noted that changes in workplace requirements were under way well before the coronavirus struck. The gradual adoption of digital collaboration tools and video has been with us for at least 30 years but has been accelerated in the last few months simply because companies have had no choice.
The move to virtual working began with the internet in the 1990s and was advanced by developments in smartphones and cloud technology. It’s led to flexible workspaces and hot-desking. Machine intelligence was already taking this a step further before the virus added the need to re-design offices as touch-free environments.
While some proclaim the era of the big office to be over, others say they will remain important as focal points for shared decision-making and argue that human interaction will always have a place, even in the new era of Zoom and Teams and AI-driven functionality. People feel a need to be seen and heard beyond the home laptop screen, and desire a need for the social interaction that can only happen in the office.
These changes will fuel a demand for newly-built offices, designed to take into account the need for automation, clean air, creative work and play space and opportunities for exercise. It will also require a greater collaboration among occupants about how the office looks and feels: no longer restricted to architects and those installing the fixtures and fittings, but embracing IT and wellbeing. This will also apply to older offices looking to adapt to the new circumstances.
If that gives some encouragement to the sector, there remain concerns that demand will soften. More companies are allowing staff to work from home, primarily to protect them from the virus, but also because they have seen that it works, even for the larger businesses.
A survey by Chartered Institute for Securities & Investment, the professional body for those working in wealth management, financial planning and capital market, has found only 25% of its members see themselves returning to their offices for the same number of working days as before the Covid-19 pandemic. RBS and Google are among those companies not requiring staff to return to the office until next year.
A poll from The Chartered Governance Institute and governance recruitment specialist The Core Partnership, concurs with this survey. It found that only a fifth (19%) of respondents will go back to work full-time and the same number will return part-time.
It’s highly likely that if firms never again have a full complement at their desks there will be a further reason to downsize, or else re-purpose their offices, either for other internal use (gyms, shops?) or by sub-letting to small businesses and workshops, though some small firms are also revising their need for space.
While the Baillie Gifford deal is seen as a sign of life in the market, its origination will have pre-dated the Covid outbreak. It is one of a number of “big deals” that have been teased out in recent weeks as evidence of pent-up demand, though the global health pandemic has pushed back completion dates on developments in Edinburgh, such as Capital Square and New Fountainbridge, and in Glasgow the developments at Atlantic Square and 177 Bothwell Street.
The sector will doubtless be issuing regular updates informing us that there is more to come, though any seller will tell you that high levels of interest don’t mean much unless they are translated into firm handshakes (or elbow bumps). To that extent, the first post-lockdown negotiated deal will tell us if the market is really holding up.