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28 April 2020

Covid-19 – The long term impacts on the office occupier market

The past few weeks has seen the most radical change to our collective working patterns in living memory. Businesses that would ordinarily operate out of offices have had to find ways for their entire workforce to work from home. These office occupiers have had their remote working technology tested in a way that was unimaginable just a short time ago; undoubtedly some have fared better than others. With any initial teething problems now hopefully subsiding, a major question remains to be addressed; what long-term impact will this prolonged period of remote working have on the office occupier market? 

The current pandemic is giving businesses an opportunity to assess the viability of remote working against their business models. Some will inevitably conclude that they simply do not need the amount of office space which they have needed up until now. These businesses may, for example, ask some staff to work remotely on a permanent basis or may even adopt a model where staff rotate the days on which they are physically present in the office, potentially cutting the amount of space required by half or more. 

Despite the potential cost saving from reducing office space, this may not suit all businesses and many office occupiers will be reluctant to go down this route. Much has been reported already during this pandemic about the mental strain of working remotely; the office is not just a place of work, but a place to meet and interact with colleagues and clients alike. In addition, there are many practical constraints which arise from remote working, ranging from the unreliable nature of many home WiFi connections to the production of hard copy documents which many workers will necessarily require in their day-to-day work. Any long term isolation of workers through remote working could therefore be counter-productive. 

So what are the other options? 

The past few years has seen a rise in the use of shared office spaces, with providers such as WeWork experiencing exponential growth. WeWork allows its members to benefit from fully fitted-out co-working office spaces, in exchange for an all-inclusive monthly fee. This type of arrangement is more flexible than the traditional office leasing model, where occupiers are often locked in for a fixed term. However, there are several disadvantages to the WeWork model. Even before the current lockdown began, many office occupiers had started taking measures to protect their workforce from the effects of the pandemic and to minimise social interaction; that of course would have been a more difficult task for those occupiers operating out of shared office spaces. There are also more general concerns with co-working, such as the potential lack of privacy and the consequent implications for confidentiality, and also managing noise and other distractions for the workforce. 

Given the potential pitfalls of co-working, it is likely that the majority of office occupiers will continue to be reluctant to move away from the traditional leasing model. That said, many occupiers will be keen to introduce flexibility into their leasing arrangements, so that they are better placed to deal with a recurrence of this or future pandemics and other unexpected economic shocks. It is therefore more important than ever that office occupiers take legal advice at an early stage, ideally before settling Heads of Terms. Our advice would be, for example, not to simply look to secure a break option from the landlord, but rather to seek maximum flexibility in that break whether it be on rolling dates, shorter notice or in minimising any conditions attached; this can mean the difference between successfully exiting a lease and being stuck with a significant liability which is no longer required by the business and simply drains cash flow. 

Away from break options, there are several other ways in which leases of office space can be made more flexible. This includes flexibility on sharing or divesting that space (by assignment or underletting), rent payment holiday provisions and shorter lease terms to name a few. Expert legal advice can help guide office occupiers through each of these options and to ensure that office occupiers are prepared for the challenging times which lie ahead. 

The traditional office occupier model is unlikely to fall away as a consequence of the current pandemic. However, office occupiers are likely to place more emphasis than ever before on structuring their occupational arrangements in a way that allows them quickly and effectively to respond to sudden unexpected shocks. Ensuring that legal advice is taken at the right time will be critical in helping office occupiers navigate the post-pandemic world.


This article was written by Usman Khan. For more information, please contact Usman on +44 (0)20 7427 6517 or at usman.khan@crsblaw.com.

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