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Don’t fight the forces of change

May 27, 2020

With a gradual lifting of the COVID-19 lockdown on the horizon, EventMAP’s Peter Jones poses some food for thought for reopening businesses.

Keen crossword solvers will not have missed the partial anagram in COVID, namely the word ‘void’. In many ways we are moving into a bit of a void as lockdown is lifted in stages around the world – and we now have to turn our minds to what may happen next. When we begin to make decisions about reopening business and restarting activities and services, nothing at this stage is certain other than a lot of things will be different. So, we need to begin to develop some thoughts, plans and actions that reflect the changes that we think may impact on our business as usual.

In the words of a US architect and systems theorist Buckminster Fuller “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”

So… what is that new model for your organisation?

There will be an impact on both private, public and not-for-profit sectors – whatever you do, and however you do it now, it is likely to change. The question is, will you fight the change or, as Buckminster suggests, build a new model?

Just in outlining some things to think about in your sector, I hope it starts you on the journey of consideration of your organisation’s future:

Sector Disruption

If you are in retail, from clothes to food, will customers ever truly go back to retail locations, as set up today, rather than online shopping?

If you are a coffee shop or restaurant business in the centre of a city, if offices close, or reduce their staff capacity due to more working from home, will the vast coffee shop chains and cafés now in operation and restaurants in the centre of cities survive?

If you are in education in schools or further education, will there be a move to increase the online content in tuition, exams and degrees? How would this effect student numbers and therefore the teaching space needed to deliver such an education?

The housing market, like commercial property, has always been sensitive to general economic ups and downs – especially in the USA and UK, with the possibility of mortgage defaults due to unemployment, uncertainty in the market leading to slowdown or worse recession. What will a surplus of housing or office space do to the wider economy, pension funds and investment returns?

In the health sector, will the world’s view of medics as the front line against COVID-19 increase or decrease people wanting to pursue a medical career? How will new hospitals be designed with the learned experience of an aggressive virus of this type – which we know, unfortunately, may not be the last we see in our lifetimes? Will budgets allocated to the NHS ever be restricted by government again?

In the travel sector, with British Airways, Virgin Atlantic and other airlines cutting their workforces and renegotiating employment contracts, with aircraft makers like Boeing reducing their workforces, and with airlines potentially reducing their orders for new aircraft, will we ever again see low cost air travel the way we have in the last decade? Will the sector disruption see a return to the train across Europe to go on holidays?

In the technology sector, with COVID-19 tracing apps being rolled out to monitor infection and testing, will we get easier about health screening apps for our life insurance, or increased well-being apps to assess our mental health at work? The lockdown has seen an explosion in our dependence on broadband connections to our homes – will this now push government support for increased fibre networks across the country as a basic business and societal continuity measure for the next time?

Real Estate

One thing is for sure: all the impacts for these sectors, and many not covered, eventually lead back to the way in which organisations will use their real estate in the future.

Many occupiers and landlords are in ‘wait-and-see’ mode, with organisations distracted by the impact to current operations, focused on figuring out how to deal with remote workers, closed locations and disrupted supply chains. Some have already started to think a little further ahead, like Barclays boss Jes Staley claiming in a recent BBC article “Having thousands of bank workers in big, expensive city offices may be a thing of the past”. About 70,000 of Barclay’s staff worldwide are working from home due to coronavirus lockdown measures. This had led to a rethink of the bank’s long term “location strategy”, Mr Staley said.

In recent years, banks worldwide have shifted staff away from expensive skyscrapers in financial hubs, but Barclays and its rivals still have busy offices in places such as London’s Canary Wharf. But Mr Staley said his bank was re-evaluating how much office space it needed, as it was now being run by staff working “from their kitchens”. He added that in the future retail branches could be used by investment banking and call centre workers, hinting at an end to long commutes for some workers.

“There will be a long-term adjustment to our location strategy,” Mr Staley told reporters. “The notion of putting 7,000 people in the building may be a thing of the past.”

Tenants and office landlords now need to have conversations about how to manage the current situation. Cashflow maybe an issue for occupiers, due to deferred rent payments and the impact on annual revenues. There has been disruption to construction projects, with builders having a difficult time getting raw materials due to supply chain disruptions and developing a safe approach to social distancing on site.

This leads to possible default on lease/build contracts because they cannot be delivered (for example new or leased space needed for tenants). Leasing activity will now be at a low point, with some occupiers inevitably asking for shorter-term leases during a period of increased uncertainty, or requesting renegotiation of terms now they find that in the new world they may need less space due to employees working from home or more space due to the continued need for social distancing. This, along with greater comfort with virtual communications during lockdown, may shift the greater value currently placed on the benefits of face-to-face interactions.

Of course, with big City offices, call centres and branches closed there will be knock-on effects on surrounding businesses, like coffee shops and pubs that depend on trade from City workers in their offices every day, and the impact on the economy for cities around the country may be long term.

So, in this new context, what could you think about to perform a basic scenario planning exercise to embrace rather than fight against the change? Here are some suggestions:

Estate Factors:

What office space do we actually need for this new reality?

  1. Portfolio holdings, utilisation of space pre/post COVID-19 crisis.
  2. FM services/cleaning/building access via touchless technology.
  3. Shorter renewal leases until ‘new’ reality is assessed.
  4. Will current space have to be re-designed for new ways of working and social distancing?
  5. Will this experience drive more co-working companies to deal with FTE growth or flexibility at a lower estate cost?
  6. Will we move from 90% of staff in offices to 90% of staff working from home, or a local, smaller company or rented co-working location?

Financial:

Have we got a clear view of our finances and how the optimisation of space could help us to prosper?

  1. Cost benefit of current estate.
  2. Cancellation of leases on new space or purchases of new freehold properties.
  3. Recoup the cost of rushed laptop roll-out from estate costs.
  4. Loss of revenue to business needs to be recouped – is estate the way to do this?
  5. Will tightness of funding lead to redundancies and less need for physical space?
  6. Will general ‘business’ distress lead to increased forced mergers/acquisition threats or opportunities?
  7. New approach to short/medium/long term financial planning needed.
  8. Less cost of business travel due to virtual meetings now becoming accepted as the norm.

People:

How will we respond to new demands from our people to work differently?

  1. Now staff are used to working from home, will they want to go back to 9-5 office work?
  2. How have employees found the isolation? How many would chose to work from home 50% of time?
  3. What training do staff need going forward to support working from home to leverage the gains for the organisation?
  4. Will people accept zero hours contracts again after experiencing the impact of COVID-19?

Policy/Procedure

Have we thought through the policy and procedures to help leverage the new way of working?

  1. Did the organisation have a Work from Home policy?
  2. Will organisations now get a surge of flexible working ‘rights to request’ for homeworking
  3. Will control/call centres be more likely to be set up from home, reducing costs and allowing more flexible shifts for employees?

Environmental

How can we leverage the benefits for the environment, and reduce our carbon footprint?

  1. Will public transport cope with the reduced level of capacity possible (and therefore revenue generation) if social distancing rules are applied?
  2. Will cycle lanes across London now get the go ahead to cope with increased cycle commuters, with people deciding it’s the best way to maintain social distancing?
  3. Will there be a new type of commuter using motorbikes or electric scooters to get to work rather than use the train or underground?
  4. If staff now run, cycle or motorbike to work, do you have enough showers, bike racks and parking to cope with the new demand?

To end with a final quote from Buckminster Fuller: “We are called to be architects of the future, not its victims” – so why not start planning for your future now?

Should you need help with scenario models around the impact on your real estate or assessing your real space needs in this new reality, just let us know.

Peter Jones

ASSOCIATE DIRECTOR

Diamond

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