Big global employers plan modest cuts to office space: Knight Frank

Published : 1 year ago, on 06/06/2023

LONDON (Reuters) – Half of large multinational companies plan to reduce office space as they adjust to hybrid working patterns, although the cuts are likely to be modest as few plan to go fully remote, a survey from real estate agents Knight Frank showed on Tuesday.

Knight Frank said 50% of employers with more than 50,000 staff intended to reduce office space, typically by 10% to 20% in the next three years, as they reassess their needs following the introduction of remote working during the COVID-19 pandemic.

But at companies with up to 10,000 staff split across different countries, most expected to increase office space.

Among the 350 multinational businesses surveyed – which employ a total of 10 million people around the world – most planned to move towards a “hybrid” workstyle, but 31% were implementing an “office-first” or “office-only” approach – which still might require a rethink of their working space.

“For most occupiers an office-centric approach in a more flexible environment will require a fundamental reworking of the workplace,” Knight Frank executive Tim Armstrong said.

Commercial property construction has held up better than residential construction in Britain in recent years, but both sectors are now being challenged by higher interest rates and broader economic headwinds.

The Bank of England is expected to raise Bank Rate for the 13th meeting in a row on June 22 to 4.75% from 4.5% to tame inflation which came in higher-than-expected in April at 8.7%.

Antony Antoniou, CEO of real estate firm Robert Irving Burns, said he saw a risk of recession as businesses focused on managing debt rather than investing for growth.

Property development and investment firms British Land and Land Securities last month flagged headwinds from interest rates rises as well as ongoing uncertainty from the change in working patterns.

However, the S&P Global/CIPS UK Construction Purchasing Managers’ Index (PMI) on Tuesday showed an increase in construction activity, partly driven by the commercial sector.

Mat Oakley, head of commercial research at Savills said demand for office space in London had increased, and flexible working appeared less of a challenge than previously thought.

“There are definitely challenges for office demand but these have been largely overstated particularly when you take into consideration employment growth,” Oakley said.

 

(Reporting by Suban Abdulla; editing by David Milliken)