Should Companies Flee London?

Within our industry, there has been a general consensus due to the restrictions imposed upon Londoners traveling into Central London to work in their London office buildings, that there should be a shift towards relocating those businesses out of Central London. This is due to the fear of using packed public transport whilst maintaining social distancing, increased (unnecessary) total annual occupancy costs, and the fact that perhaps the CEO/MD lives well out of town and therefore doesn’t want to have to come into London as much as he used to.

The above all sounds feasible but does the market offer opportunities to those businesses to achieve all of this but also retain talent? This is the big question and one that will only be answered over time.

Let’s take the reasons why a business might relocate out of town and break them down in more detail.

Social Distancing

London, unlike many other European or even world cities, relies heavily on its public transport system, and irrespective of COVID the tube was always an incubator of seasonal germs so it makes sense that it will also be an area that could harbour and spread a germ like COVID. There isn’t really any other way, other than wearing masks, for the tube to be deemed cleaner to be honest, especially with the germs being airborne and flying around each station and the carriages itself due to the ‘kinetic envelope’ created by the trains as they pass through stations. This means there is a real fear that Joe Public will be exposed to a significantly higher risk of catching the virus whilst going on the tube. Other modes of public transport are perhaps slightly less risky than the tube but when they are busy there will always be that risk (think of the snotty bloke sniffing away next to you on the train home).

So would work out of town, therefore, provide the employee with a less risky way of traveling into an office? Well yes of course as they would probably need to drive if the new location isn’t as easy to travel to. Other than the ‘ginger line’ as I like to call it, The London Overground Line, which runs around the central parts of London connecting Shoreditch with Clapham and Shepherds Bush, there is no easy way of getting to other parts of outer London without driving. Cue all those cyclists bemoaning that statement stating their pedal power will save the world. I get it, cycling is good for you, and yes it is eco-friendly, etc but let’s see how many of them are willing to cycle to work on a freezing January morning when it’s pissing down with rain, or will they jump in their warm car and head to work?

Cost

Granted Central London is expensive and since the last financial crash in 2008/09, there are now barely any micro-locations/submarkets that are more affordable. Over 10 years ago, places like Shoreditch, Southbank, and Clerkenwell were relatively cheap compared with the West End and City but not now they are very trendy. Therefore moving out of London should offer businesses a significant annual saving on their occupational costs, especially if they are requiring less space. So, in theory, acquiring space out of town will achieve this goal.

Type of Building. Trendy vs Non Trendy

With the possibility of occupiers looking towards locations outside of Central London, one aspect that they will want to try and maintain is the quality of those buildings and the quality of the space that they occupy. Whilst interiors companies can come up with some fantastic ways of fitting out offices these days to make them as cool as possible, often this is only possible when the structure of the building and the mechanical and electrical plant allows them to do it. Many out of town locations have suffered from a lack of investment and there are still some very boring buildings out there and often you can only polish a turd so often…it’s still a turd at the end of the day. Millennials in particular like their cool spaces and at the moment I would suggest there is a catch 22 for many occupiers trying to save costs whilst considering moving out of town and maintaining the talent pool to struggle through these tough times we’re encountering and come out the other side with a positive workforce and 2nd rate tired buildings don’t tend to offer this to occupiers.

Talent Pool

As London grows, it has become the place to be for workers and those workers have typically got younger. Those younger workers want a cool place to work, places to go for lunch, and then places to go after work. London has this in spades and most of the sub-markets in Central London now offer so many options to those workers — they really are spoilt!

Let’s hope that continues after the COVID situation (not looking great at the moment I have to say with not many people being in London).

Occupiers moving to out of London locations definitely need to take into account what the talent pool wants on their doorstep and a lot of those regional locations simply don’t have the same kind of amenities on their doorstep. An All Bar One, a Wetherspoons, and a local café simply isn’t going to cut the mustard here and because of the problems without of town retail, we may see these areas get worse before they get better, until every town and city around London is filled with cooler independents offering the kind of ‘London’ things enjoyed by many today. Also, how many of the younger generation are going to be able to get to these out of town locations? Historically many of these towns have been reached via car and many of the younger swathes of the talent pool simply can’t commute by car.

Brand

As a business, having a London address means you’ve got a presence in your marketplace. How many of those businesses are going to struggle to appeal to their clients and against their competitors when they have a Slough, Croydon, or Brentwood address? This is something occupiers are going to need to work out and their PR campaign against moving out of London will need to be managed carefully.

Cheaper Labour

One aspect that occupiers will be able to take advantage of by not being in Central London is having to pay the London weighting salary usually seen by those commuting into town. This is certainly something that many larger firms are weighing up at the moment because paying Joe his £70k London weighted salary when the alternative of finding Chris at £50k who lives 10 mins from the new office in Guildford will become more and more compelling for those businesses who realise that they can save money and still attract talent due to the remote working aspect.

Flexible workspace

In these uncertain times, one thing we are seeing is that occupiers are increasingly looking for flexibility in their terms in relation to how long they are willing to commit to space. This is the case across all areas, not just Central London, however London offers occupiers a significant number of options in this regard but out of town this is not the case. One of the resources SHB uses showed a huge increase in serviced office requirements in August, more than the last 4 months combined, however it was at the start of the lockdown where leads of serviced offices out of Central London were seen rather than more recently. One reason for this was generally the quality of the out of town serviced office market is nowhere near as ‘hip and cool’ as the flexible spaces of London and it quickly became apparent to occupiers that pulling their employees out of cool space in town and putting them into second rate, boring spaces out of town was a step too far. The good news for the regional towns and cities away from London is that a new breed of serviced office operators are arriving to challenge the old way of doing things and providing spaces that occupiers would be happy to relocate their staff to. Time will tell whether that works and whether the occupiers will pay a little more than usual out of town and whether the operators will make the profits necessary to make this viable, especially in these uncertain times.

The same can be said for the landlords of out of town buildings in converting their previously dull and boring buildings to a product that will attract occupiers. The issue with a lot of this though will be the levels of stock as many of the secondary buildings were converted to residential through the permitted developments rights over the last few years and the local authorities need for affordable housing. If stock levels remain low in the suburbs, the rents may not be as attractive as occupiers need them.

Summary

There is no doubt that Central London is currently in a bit of trouble and it’s going to take some time to get people back in on a regular basis, but this doesn’t necessarily mean that companies should pack their bags and head to the door. Time will only tell how London measures up to the changes but in the mean time all of us at SHB are optimistic that companies will dig in their heals and fight for the prime real estate that London offers.

For advice on any office relocation or lease issues. Get free advice from our team by contacting us at. www.shbre.co.uk