WFH has transformed UK real estate – creating new opportunities for Mideast investors

The shift to a Work From Home (WFH) ethos – created out of necessity during the pandemic, has transformed how employers and employees interact. It has also radically transformed the way that office spaces are used, and for many occupiers, it has become a valuable cost-saving measure. Multiple analyses show that hybrid working is now the norm, with 44 per cent of workers having reported home or hybrid working and 56 per cent reported only travelling to work in the last seven days (September 2022 to January 2023). This enduring dynamic is radically transforming the office real estate market by driving demand for best-in-class Tier-1 properties – and challenging the long-term viability of older Tier-2 accommodation.

The trend is not confined to the UK. A Gallup survey of 135 Chief Human Resource Officers (CHROs) from Fortune 500 companies shows that nearly half – four in 10 of those companies surveyed - plan to reduce their office foot traffic. In total, they forecast a 37 per cent reduction in office foot traffic compared with 2019. In the GCC – a highly digitally literate region – advanced technologies and video conferencing apps like Zoom and Microsoft Teams have revolutionised attitudes to WFH, distributed workforces and cross-border collaboration. However, the quest for top talent and a growing need for social interaction, creativity, training and engaging directly with management has led to a realisation that employees aren't content with a full week of WFH.

Growing demand for Best-in-Class office space

Sam Tayan, head of Zoom’s Middle East and North Africa division, has commented that “Working from home and hybrid working have become commonplace, as 57 per cent of UAE firms offer variations of these, and, in most cases, it has become a necessity.” According to the most recent data from the UK Office for National Statistics (ONS), those in professional occupations reported the highest levels of home and hybrid working. Professionals who are managers, directors and senior officials were the three occupations with the highest levels of working only from home (27 per cent, 22 per cent and 21 per cent, respectively) and hybrid working (44 per cent, 39 per cent and 43 per cent, respectively). This suggests that hybrid working is quite probably a permanent dynamic – and one that has significant repercussions for commercial office space development.

The impact of the hybrid revolution on the UK property sector – and on the opportunities it has created for Middle East investors – is manifold. Unlike tier-2 assets, which often face a multitude of challenges, such as being further away from local amenities, Tier-1 best-in-class accommodation in key business districts is in high demand in the UK and internationally. This has caused a shortage at the top end, while older, less desirable buildings in less prime locations struggle to find occupants. Additionally, new environmental regulations in the UK mandate that by 2030, all buildings need at least a 'B' EPC rating. Many tier-2 assets will need substantial future capital expenditure to meet these impending regulations, which in many cases will be economically unviable.

Changing workplace priorities

This rising demand for Best-in-Class commercial office space in desirable city-centre locations is being driven in part by a shift in the type of experience that employees are looking for. Within the context of a talent shortage across many sectors, employers are increasingly creating offices that offer more than just a place to work. Offices surrounded by city amenities might be the winners in the upcoming market cycle. Welcoming office spaces that are well-designed, well-lit, and well-configured for the changing nature of how office use is now perceived are in high demand. Furthermore, for employers who are actively looking to encourage staff back into the workplace, best-in-class tier-1 assets are a particularly attractive option.