Charles Wright: City Corporation to take long hard look at demand for office space as post-Covid ‘new normal’ takes shape

Charles Wright: City Corporation to take long hard look at demand for office space as post-Covid ‘new normal’ takes shape

The Square Mile may not be on its last legs as some hastily suggested as the pandemic took its toll. Nevertheless, what increasingly looks like a permanent shift towards hybrid working has major implications for the capital’s preeminent business district.

Mobile phone data reported by the BBC  suggests Tuesday, Wednesday and Thursday in the office is now the new normal, with Mark Allan, chief executive of property company Landsec, reporting activity in the City well down on Mondays and Fridays almost as quiet as weekends.

“We’re not going back to how things were pre-Covid,” he said. “We certainly believe there are going to be fewer people in offices for the longer term and we are planning accordingly.”

Underlining the point Square Mile paper City A.M. is going digital only on Fridays and Transport for London’s 2023 business plan assumes Tube and Overground ridership, including weekends, will not reach even 86 per cent of 2019 levels until 2026.

Now, in a significant response, the venerable City of London Corporation, long-time champion of the Square Mile’s global business role, is commissioning a detailed look into changing demand for office space. Crucially, this will feed into the corporation’s new City Plan, the development blueprint for the Square Mile up to 2040, currently being drafted.

The research will consider how much hybrid working is “permanently reducing” the need for new office space, and whether a new focus on top-quality premises is reducing demand for the “lower grade” variety, which could therefore be released for different uses.

“These are fundamental questions for the City Plan, in terms of the overall quantum of office floorspace that the Plan should provide for and the mix of land uses in the City going forward,” a report to last week’s meeting of the Corporation’s planning committee stated.

Committee chair Shravan Joshi was talking up the Square Mile earlier this month, telling the Evening Standard that 10 new skyscraper proposals – “substantial buildings that will change the skyline of the City” – were an encouraging sign of investor confidence and the area’s “post-pandemic resilience”.

Applications already under consideration include a 63-storey development at 55 Bishopsgate and a 32-storey tower next to Leadenhall Market. A revised application following a design overhaul is also expected this year for the 57-storey Diamond proposal at 100 Leadenhall Street.

It’s a mixed picture though, with inflation taking its toll alongside the impacts of working from home. New London Architecture’s latest tall buildings survey shows applications down 13 per cent overall in London – the third consecutive year-on-year fall, albeit with 12 office towers in the City pipeline with an average height of 38 storeys.

Will these skyscrapers materialise? Deloitte’s latest London “office crane” developers survey found 55 per cent of respondents expecting a decrease in their development pipeline over the next six months and some 70 per cent expecting a ten per cent fall in demand for office space in London in the long term, “driven by an accelerating shift to hybrid working”.

The recent major study by Arup, Gerald Eve and the LSE for the Central London Forward group of boroughs also found significant office space taken out of use over the past 12 months, mainly in prime central locations. While office employment was forecast to grow, the modelling showed “inhabited floorspace” reaching 2019 levels only at some point between 2030 and 2040.

The so-called “flight to quality” in developer-speak – companies looking to move to the newest offices and meeting sustainability requirements along with the need for flexible and well-resourced collaborative environments – is a key consideration. No more serried ranks of desks and computer screens.

Demand for this “Grade A” space is high, the Arup report says, helping to sustain the current market, along with pent-up demand from the pre-Covid period. That’s potentially good news for the Square Mile, despite what Deloitte identifies as an “overarching trend” of reducing demand overall.

But twin challenges remain for the City and other central London authorities. Firstly, it’s not all about what’s inside those shiny new towers. Central London’s wider appeal is fundamental to keeping offices attractive and enticing new employers, says Arup.

“The offer outside the office door is fundamental to keeping offices attractive,” the report argues. “Increasingly it is London’s leisure and culture facilities, and vibrancy and diversity…that matters”.

Deloitte’s Siobhan Godley makes the same point: “Occupiers now want offices that are bright, airy and attractive, and surrounded by shops, bars, gyms and restaurants.”

Secondly, as Arup says, a “flight to quality” will result in what the City Corporation calls “stranded assets” – lower grade office space passed over by potential occupiers and increasingly unviable. Converting these redundant buildings to much-needed housing should be on the agenda, the report recommends.

The City Corporation now seems set to face these challenges head on, with the Guildhall looking to a new kind of future for some time. Its political chief Chris Hayward was talking just last week about realising the “full promise” of the Square Mile, with more plans on the way to “boost our reputation as a place where people want to live, work and visit”.

The new approach signalled by the forthcoming research hasn’t met with universal approval. “This is not a dry or technical subject,” Guildhall veteran Michael Cassidy told last week’s planning committee. “It has huge implications and its conclusions could be very controversial,” he warned, calling for an “ultra-cautious” approach to forecasting working from home trends.

The Centre for Cities think tank has also argued that while city centres do need some housing, government programmes should not squeeze out initiatives that make city centres “attractive to more productive firms and jobs”.

There’s certainly a lot at stake, with the Square Mile, along with central London as a whole, continuing to make an outsize – and currently much-needed – contribution to the UK economy.

Guildhall planners, perhaps wary of sensitivities, did not go into detail about office to residential conversion. It was only in 2021 that then Guildhall policy chief Catherine McGuinness had to rapidly rebut suggestions that the corporation’s post-Covid recovery plan was proposing to convert empty offices into housing.

But the debate is already underway in London and elsewhere. A Centre for London report last year argued for the benefits of sensitive conversion to create much-needed housing and to support neighbourhood vitality, and looked at the instructive approaches of comparable cities internationally, which the Guildhall researchers too will be looking at.

A new report for New York City jointly released in December by mayor Eric Adams and state governor Kathy Hochul proposes relaxing planning restrictions to make the city’s business districts more “live-work-play”.

A shift towards mixed use policies would reinvigorate commercial centres “24/7”, the report says, while warning against an “overly aggressive” correction away from office space. “These are business districts but they are not limited to that. Why can’t we have people living there as well?” Hochul said.

The Federal Reserve Bank of New York has previously highlighted significant increases in the residential population of lower Manhattan including Wall Street – up some 70 per cent since 2001 – as contributing significantly to the area’s resilience both after 9/11 and through Covid.

And in Washington DC a new mayoral “Comeback” plan includes proposals to “revitalize downtown” by adding 15,000 new residents, with city officials exploring repurposing office space for housing.

Back in London, Sadiq Khan will be looking at the Guildhall’s findings with interest. Long-standing City Hall policies are designed to support the “nationally and internationally significant office functions” of the Square Mile, giving office development priority over housing. Could that be about to change?

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