Office Space Review And Predictions 2023/24 – Part One

Looking at trends in the office space sector, focusing on factors such as the length and type of leases and the nature of the office space which is most in demand, is something which is inextricably linked to observing changes in working patterns.

The starkest example was provided during the COVID-19 pandemic, when lockdowns and work from home directives completely removed the requirement for the vast majority of commercial office space. Even as late as the end of 2023 the sector as a whole was still recovering from this trauma and, more pertinently, was adjusting to the permanent switch toward hybrid working which plays a huge role in the post-pandemic working environment. Before we look at commercial office space trends from 2023, and see what experts in the sector are predicting for 2024, it’s probably worth looking at some data on working practices in general.

Working Life In 2023

Recruitment company Hays published research into working patterns across Scotland in November 2023, in an attempt to shed some light on the on-going debate over whether the switch to home-working or hybrid working was still taking place or had turned out to be a temporary phenomenon. In simple terms, the research, which involved a survey of 15,000 professionals and employers, including 886 from Scotland, seemed to show that the switch to hybrid working – with workers dividing their time between home and the office – now seems to be levelling out. According to the figures, 39% of professionals in Scotland are now working on a hybrid basis while 39% are working fully in an office-based setting, figures which indicate that the trend, which had been shifting toward hybrid working, is now beginning to rebalance, although 22% of professionals in Scotland are currently working remotely full time.

Other findings included the fact that 56% of workers would be willing to accept a job in the future if hybrid working wasn’t offered, and 44% stating that they wouldn’t take a role if hybrid working was not an option. In response to attitudes such as these, 68% of employers in Scotland currently offer hybrid working, with 27% anticipating that their hybrid working offering will change over the next 12 months, in terms of more staff attendance being required.

What this particular research demonstrates is both the fluidity of the current Scotland-wide office working environment and the requirement placed on employers to offer the most flexible workspace possible. This is reflected in the finding that 71% of employers have retrofitted workplaces, offices or meeting rooms in order to make hybrid working possible (retrofitting steps included fitting screens, cameras and microphones to enable inclusive remote working) while 55% of organisations based in Scotland now operate a hot-desking policy in their workplace.

The Rise of Flexible Working

The Chartered Institute of Personnel and Development (CIPD) also published statistics on flexible and hybrid working practices in their report published in May 2023. This survey gathered data from employers and employees across the UK, and found that there had been an increase in requests for flexible working, and that 45% of organisations across the UK have adopted a formal policy on hybrid working, with a further 24% having a more informal approach. The definition of flexible working used in the CIPD report is fairly wide, drawing compressed hours, job sharing and working from home under one umbrella. The section referring specifically to hybrid working states the following:

• 83% of organisations have some form of hybrid working in place (up from 77% in 2022)
• Of those which offer hybrid working, 52% require employees to attend the workplace for a minimum number of days in the working week or month, while 46% don’t, with employees usually required to attend the workplace two days a week (35%) or three days a week (33%).

Perhaps the most interesting aspects of the CIPD research are the fact that the statistics tend to apply fairly steadily across the private, public and voluntary sectors, and the reasons given by employees for offering hybrid and flexible working. These reasons were as follows:

• 60% - to improve their ability to recruit and retain employees
• 60% - to improve the work-life balance of employees
• 54% - to support the motivation and productivity of employees
• 54% - to support the mental health and well-being of employees

Another report from the CIPD, published in June 2023 and entitled ‘Working Lives Scotland 2023’ looked into attitudes toward flexible working and found that the concept as a whole had embedded further into Scottish working life but that there are still gaps in the degree and type of flexibility being offered to Scottish employees.

What all of this means for the Scottish office rental sector is that those organisations keen on offering the best environment for their employees are most likely to be the ones which, now and in the future, look for the kind of high quality office space which either has flexibility built into it or can easily be reworked to embrace flexibility. While the shift toward hybrid working seems to be slowing somewhat (particularly when compared to the period immediately post-pandemic), the situation as a whole is still in a state of flux, with a definitive ‘new normal’ yet to be firmly established. Given these facts, anyone offering to lease office space to organisations will need to be aware of – and ready to respond to – the fact that the demands of those organisations for both the type and amount of office space needed may continue to evolve for some time.

Aberdeen Office Space

When it comes to analysing current trends in a city such as Aberdeen the timing means that we have to rely, on the whole, on figures for the first two quarters of 2023 and comparisons with 2022 in order to extrapolate trends and the general direction of travel. According to figures published by global real-estate experts CBRE, Aberdeen is still demonstrating a fall in office availability, with supply in the second quarter sitting at 2,516,097 sq ft, down 5% from the previous quarter. Within these availability figures, Grade A office space is in shortest supply, with just 8% of the total space in the city (209,362 sq ft) available. The shift toward flexible working spaces highlighted previously is likely to mean well-equipped office space of this kind, with the kind of amenities and facilities which enable hybrid working more simply (excellent WiFi to name just one), remain in high demand into 2024.

Smaller Office Space

One other trend, shared with the cities of Edinburgh and Glasgow, is that the majority of transactions involved office space of less than 5,000 sq ft – activity and demand are staying steady or rising but the amount of space required by organisations is falling, something which once again doubtless reflects changes in working patterns, and which companies will have to bear in mind when building an office space portfolio.

As well as impacting the type of office space required, the need for enhanced flexibility is likely to impact on the nature of the leases being sought, with extra demand for shorter leases and break clauses, as well as the ability to expand or reduce the amount of office space required over the course of a particular lease period.

Quality Office Space In Demand

Data published by property website Rightmove – in conjunction with property intelligence provider EG – showed that, across the UK, the demand to lease office space was still higher in 2023 than it had been in 2019, prior to the pandemic, indicating that the shift toward hybrid working is likely to alter the nature of the office space being sought but not the amount. According to the figures, the part of the UK in which the demand to lease had risen the most was Scotland, where demand was 11% higher than it had been in 2019. Scotland, what’s more, was the only region in the UK to have shown a rise on the precious year, with 2023 being 7% up on 2022.

Property experts Savills published figures looking at the trend toward more flexible office spaces across the whole of Europe and the UK. Amongst the findings was the fact that there has been a major shift toward management agreements, under which the landlords tend to retain more of the obligations for the office space. By the end of the first half of 2023, agreements of this kind – as opposed to more standard leases – accounted for 43% of deals across the UK, up from just 9% in pre-pandemic 2019. At the time of publication (October 2023), it was noted that there were 14 serviced office operators seeking office space of more than 20,000 sq ft in the UK, and that 93% of those were seeking a management agreement structure to any deal. The cost per private office desk in the UK has been pushed higher by the increased demand for quality, and in the first half of 2023 was 15% higher than in the first half of 2022. At the same time, enquiries had risen 12% year on year, meaning that, when compared to pre-pandemic levels, enquiries for office space are now a huge 173% higher.

In part two of this round-up we’ll be looking at the landscape for serviced office space, the dramatic fall of WeWork and the lessons to be learned, as well as rounding up predictions for the sector in 2024.