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Home working effect

Third of firms to talk with landlords over office space

New office

Many offices are empty as staff work from home

More than a third of firms plan talks with their landlords to review their office requirements following the widespread success of home working.

New research from the CBI reveals that 37% of firms are conducting, or planning to conduct, conversations with landlords or managing agents to review their office space needs.

A quarter (26%) now see half or less of their office space as essential while two-thirds (65%) regard at least 20% of their office space as non-essential.

The figures will add to concerns in the property sector that demand will shrink, with a corresponding fall in rentals to lure businesses back into the market. However, if it prompts a slowdown in building activity this would provide some stability to rental values.

Pre-Covid trends in Scotland have indicated that demand in Edinburgh and Glasgow outstrip supply but activity in the second quarter was described by CBRE as non-existent. There are some signs of a pick up in Q3, but uncertainty around the economy is weighing on investor decisions.

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The London market is also nervous about the a fall in demand for offices, with Canary Wharf Group ordering its staff back to the near-deserted financial centre.

The Bank of England has become concerned at the low level of activity in the City, while banks have seen an opportunity to cut costs.

HSBC said just 20% of its 10,000 London staff will return to their offices next month. Natwest/RBS was unable to provide figures. TSB told Daily Business that the majority of its office-based employees (c.3,500) are working from home and it is consulting with them on how best to return to offices.

“This work continues and we’re next likely to update them in September,” said a spokesman.

Fast track planning proposal

Scotland’s planning rules will come under pressure after the Housing Minister in England announced that new homes and hospitals will be granted “automatic” permission to be built.

Robert Jenrick announced a “permission in principle” will be given to developments on land designated “for renewal” to cut red tape and speed-up building.

It comes after the Prime Minister pledged £5bn to “build, build, build” to help soften the economic impact of coronavirus.

Shelter has warned against any reforms that lead to “bad-quality” housing.

Private sector activity picks up

The CBI’s research found that private sector activity fell sharply in the three months to July, but at a slower pace.

Looking ahead, the pace of decline is expected to ease further over the next three months. Manufacturers expect output to grow (+15%), marking the first time that expectations have been positive since lockdown measures were introduced. Distribution (-16%), consumer services (-49%) and business & professional services (-23%) expect activity to fall at a slower rate.

Supplementary COVID survey questions revealed:

  • Only 6% of firms remain non-operational (down slightly from 9% in June), whilst 21% are partially operational (from 35%). Around two-thirds of firms (67%) are completely operational (i.e. with all sites open, or some operations/staff offsite).         
  • A one-metre social distancing rule on average allows firms to operate at 85% capacity, compared to 72% under a two-metre rule.
  • The proportion of firms citing low demand as an operational challenge remained high (68%) but eased slightly from June (74%).

Alpesh Paleja, CBI lead economist, said: “With businesses gradually reopening, this month’s data seems to indicate a turning point for the economy. Yet activity is still falling sharply, particularly for those in consumer-facing sectors.  

“It’s clear that many businesses remain in acute financial distress. The Chancellor’s Summer Statement was a good start in addressing the growing economic legacies of COVID, but there’s more to do. More immediate direct support for firms, from grants to further business rates relief, is still urgently needed.”

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