Shifting working patterns: The expanding commuter belt

EG’s head of workplace and offices research Graham Shone has taken a deep dive into how the coronavirus pandemic will change national working patterns and the subsequent knock-on effect of those changes on not just the office market but the wider real estate ecosystem. Drawing on data from EG’s Radius Data Exchange and other sources, many of the discussion points raised reflect changes that are likely and expected to take place as a result of this uniquely accelerative event. Over the past two weeks, EG has investigated the role of offices in a post-Covid world (Shifting working patterns: What is the reality for offices?), and how retail will be impacted by a growing work from home culture (Shifting working patterns: How WFH could be the high street’s saviour); this week, we look at how residential demand and pricing could change as a result of shifting working patterns. With the home increasingly having to double as an office for many of the nation’s workers during lockdown, it is impossible to think of a “new normal” in which the residential sector is not profoundly impacted by shifts in working patterns. The relationship between where we live and where we work is often defined by the commute – specifically, what we are willing to trade in terms of time and money to improve our living situation relative to the necessity of “presence” in the office. Before the widespread and enforced adoption of home working, an individual may have only been happy to have a one-hour commute in and out of work on a daily basis. This “rule” would undoubtedly confine the geography in which they would look for a place to live. However, in a more flexible environment where that individual works in a main office only three out of five days, could they be more open to a two-hour commute? Any such shift in thinking should lead to a surge in interest for less urban areas from city-centre households that have not only done the “commute maths”, but that have also gained a greater appreciation of green space throughout lockdown. This may be acutely applicable for younger workers who are likely to form a significant cohort of first-time buyers in the coming years and who are far more likely to have lived through lockdown in less-than-desirable conditions. A recent study by the Resolution Foundation called Lockdown Living found that people aged 16-24 are more than one-and-a-half times as likely to have no garden, or to live in a derelict or congested neighbourhood compared to those in older age brackets. The experience of living in those types of conditions through a uniquely straining period will have resonant impacts on that age cohort as they progress their careers and eventually come to make decisions on where they choose to live permanently. When it comes to buying homes, data on purchase prices since 2007 shows that the biggest spikes have come in local authorities which are described as being “urban with a major conurbation” – essentially, major towns and cities. While one would not expect the “new normal” under altered working patterns to elicit a wholesale rejection of urban living and an associated fall in values in those areas, the anticipated movement towards flexible working means that one critical facet underpinning property prices – proximity to office space – will be much less of a factor. Some suburban housing markets that rely more heavily on providing those “historically acceptable” commute times into central locations are likely to suffer from demand slumps in the medium term – particularly those without other insulating factors to retain their appeal; such as significant supply of green space or being in the catchment area of high-quality schools. Meanwhile, extraneous locations with large amounts of green space that are able to provide a “newly acceptable” commute time into central office hubs are more likely to see accelerated residential demand – especially if their housing stock is relatively affordable for office workers priced out of city-centre purchases. Rental markets will, of course, be slightly different. For many renters, the “buzz” of living in a town or city location is a significant enough part of the appeal not to shift their behaviour even in light of recent circumstances. What will be interesting to see is whether any increase in central urban living in affordable private rented accommodation can give enough of a natural boost to footfall and consumer spend within local authorities to supplant that daytime patronage they are likely to lose owing to the absence of office workers. Shifting working patterns – what do they mean for real estate? The critical aspect for the commercial real estate industry as a whole is an understanding of how this pandemic has altered the ways in which human beings interact with their physical environment, and what those alterations in mindset and activity will do to the property ecosystem. We await fuller data on how exactly office-dwelling corporate bodies have responded to the forced changes to working practices brought about by coronavirus. Principally, the triumvirate approach outlined in part one of this series ought to satisfactorily achieve broad-brush corporate goals pertaining to both productivity and talent retention/acquisition. Office-based firms should use a combination of direct employee engagement, productivity analyses and intuition to ascertain the workspace segmentation that best suits their overall requirements. Corporates should build in as much malleability as practicable to account for future shifts in working patterns; and think about satellite offices or flex memberships in areas where their workforces live. The intrinsic requirement for well-connected, high-quality, centrally-located office premises will still be present during and after these shifts so, for real estate players in the office sector, the chief consideration around these shifts is geographical. Careful attention will need to be paid to how that “hub-and-spoke” approach to working plays out within certain regions dominated by key cities – and how those areas with an existing high volume of white-collar residents evolve into secondary office hubs that can better support local retail and leisure businesses. The likelihood is that those “spokes” will grow longer as workers expand search radiuses for home purchasing under revised acceptable commuting times. Effectively this means an expansion of commuter belts to more affordable – and potentially more rural – areas at the expense of less desirable suburban locations which often rely on their proximity to central business districts to maintain house prices. Town centres and high streets can be reborn and revitalised in those areas that will enjoy either an immediate or deferred increase in the daytime presence of “office workers”. They can be further supported by both public and private investment providing a genuinely curated retail and leisure offer that is in keeping with the actual characteristics of the area, which will tap into the growing popularity of localism. The future of real estate is changed, with the shift in working patterns the catalyst needed to bring about the evolution of the sector as a whole. Read parts one and two of EG’s Shifting Working Patterns report: Shifting working patterns: What is the reality for offices? Shifting working patterns: How WFH could be the high street’s saviour To give feedback and comment, e-mail graham.shone@egi.co.uk or tweet @estatesgazette using #shiftingworkingpatterns