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COVID drives wholesale city centre changes

11 February 2021: Despite the rapid deployment of COVID-19 vaccines, people are unlikely to return to the old ways of working, a new report from KPMG has warned.

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The pandemic will have a lasting impact on the look and feel of many towns and cities, adding a new dimension to the levelling up agenda and forcing a rethink on how places need to evolve if they are to continue to be vibrant places to live, work and visit.

These are some of the findings of a new report, The future of towns and cities post COVID-19, published by KPMG and based on research conducted by Demos, which highlights some of the big issues facing town planners, local authorities and business leaders, grappling with the impact on the pandemic on town and city centre use.

In many respects, COVID has merely served to accelerate changes already underway, the report says, notably a shift to online shopping and an explosion in homeworking. Despite the rollout of vaccines, people are unlikely to return to the old ways of doing things, it warns. 

“With fewer people coming into big cities and towns to work and shop, that leaves a big space in areas that were once characterised by bustling shops and offices. Those places most at risk are those that have little else to attract locals and visitors from further afield,” says Yael Selfin, KPMG UK chief economist.

“When we’re trying to solve the problem of levelling up, if we’re just doing the same old things without understanding some of these profound differences, you can end up with paralysis or worse, oscillation,” report author and KPMG partner Mark Essex warns.

The structural challenges to city centres mirror the challenges facing transport networks post-COVID as the drop in footfall is reflected in falling passenger numbers, the report warns. “Fostering collaboration between businesses and local policymakers can help rethink the journey to work with a focus on lower-carbon, more customer-oriented and better-connected transport networks. Other important areas include prioritising investment in high-speed broadband and 5G connectivity.”

Not surprisingly, structural changes to the way many businesses operate are leading them to rethink the purpose of their office space, think about changing their office set-ups to suit new working models and ultimately scale back their property portfolios. “Many CFOs are delighted at the opportunity to cut costs by downsizing on expensive property commitments,” the report states. 

Another recent study conducted by Grant Thornton found that over a third of UK mid-sized companies expect to reduce their office space in the future, of which three-quarters anticipate slashing their office footprint by as much as a quarter and 12% by up to half. 

Grant Thornton’s Associate Director, Real Estate and Assets John Burgess said this wasn’t the ‘death of the office’ but instead the nature and purpose of office space would evolve to accommodate different ways of working. “What we’re seeing is more of an evolution. Teams still need to meet each other, and many organisations will need dedicated space to meet clients and host events,” Burgess said.

“There is also likely to be a shift from habitual daily desk-based working to a much greater focus on planned collaboration time with teams and with clients. This change in working style, which is expected to continue to some extent post-pandemic, provides a chance for companies to reimagine their offices and create spaces for their people, clients, customers and stakeholders to use collaboratively, and more strategically,” Burgess added.

Meanwhile, the latest Deloitte’s Crane Surveys show that construction activity in Belfast, Birmingham, Leeds and Manchester is holding firm amid the pandemic, with the cities delivering nearly 2.5m sq ft of office space in 2020, an increase of more than 547,000 sq ft on 2019’s total. The reports also show that 3.61m sq ft of office space is under construction. 

Simon Bedford, partner and regional head at Deloitte Real Estate, said regional office construction was strong in 2020, despite some delays in construction caused by lockdowns. However, the office pipeline has softened somewhat, as developers take a ‘wait and see’ approach to future demand. “Our latest CFO survey showed that homeworking is predicted to increase five-fold by 2025. The role of the office could flex to meet shifting demands for collaborative and creative space, as organisations reevaluate their needs.”

While many have embraced homeworking, the fact remains that people continue to have a strong affinity with the workplace and, once safe to do so, would like to return to working in the office, albeit with increased flexibility to work from home one or two days per week. That’s the conclusion of research conducted by real estate services provider JLL in May. 

Respondents to the survey said the things they missed the most about the office were human interaction and socialising with colleagues. However, almost one in three bemoaned a professional environment supporting access to everything they needed. Collective face-to-face work and having a clear distinction between personal and professional lives were both cited by 29% of respondents as things they most missed about the office.

The challenge and opportunity for both business tenants and the real estate sector is how to harness the productivity and innovation benefits of the workplace and reconcile it with the unstoppable march towards more of a hybrid working model that will see increasing numbers of employees split their time between home and office working.

In the meantime, the inevitable slump in commercial property prices could have far-reaching ramifications – for corporate pension funds and insurers’ solvency, to the ability of SMEs to offer loan collateral. Andy Pule, Head of Real Estate for KPMG UK said the fall in value for retail properties could be as much as around 50% of the previous peak, and in some cases much lower. 

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Further reading

Article series: Infrastructure and Recovery

A plethora of financial, climate, health, societal and business issues have resulted in significant challenges for economies globally. Pressure on public finances, and the need for simultaneous levelling up, will be immense – while private investment must be more enlightened. Where does infrastructure investment fit into recovery?

See the series