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Commercial property viable investment despite potential remote working increase

5 May 2020

Long-term demand for commercial property will not be hampered by the current homeworking trend, says Kames Capital.

The Covid-19 lockdown has forced the majority of office workers to work remotely and while there will likely be an acceleration towards more flexible working patterns once restrictions are lifted, an imbalance in the supply and demand dynamics of office space will help keep the market buoyant, according to the investment management firm.

Richard Peacock, fund manager, property, Kames Capital, says: “I have no doubts about the long-term viability of UK office market. There is a supply and demand imbalance in almost all UK office markets and a UK recession is likely to delay the supply of new development stock coming through which will heighten the imbalance if tenant demand recovers as we expect.”

As entire organisations adopt home-working practices, lockdown has demonstrated the effectiveness of working remotely during a crisis, but Peacock says it has also highlighted the challenges of colleagues being physically apart.

Peacock explains: “The benefits of collaborating in an office environment are likely to be even more widely recognised at the end of this process and it will accelerate some of the themes we have seen emerging in recent years which have seen a huge transformation within the office sector.

“Office buildings are being recognised as a recruitment and productivity tool by occupiers. The idea that landlords are simply a distant rent collector has changed with the owners of office buildings recognising the need to play a more active, engaged role with the occupiers. This has created challenges around the design and layout of buildings, the provision of facilities and amenities demanded by modern occupiers, the creation of a community within an office and offering different leasing models to provide flexibility.”

Peacock expects to see businesses reduce property costs through agile working, with office requirements expected to shrink marginally as a result. However, a lack of good quality supply means this is unlikely to impact the supply and demand relationship.

He adds: “We are already hearing about occupier requirements still being actively pursued and will have a better picture on tenant demand in the coming weeks, but I don’t think everyone talking on Skype has undermined office demand. Quite the opposite, I expect there are a lot of people who are desperate to get back into an office.”

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