The Hanging Gardens of Babylon were named as one of the seven wonders of the Ancient World. Thousands of years later, in a COVID-19 lockdown world, the famed terraces rich with foliage and flowing waterfalls could be just as desirable to landlords and occupiers looking to enhance their office spaces as they were in ancient times.
Although COVID-19 may change our outlook on work, we hope it will only be a short-term disrupter which temporarily alters our requirements for office buildings until a vaccine is found. We expect the same long-term drivers for the design of office buildings to remain: climate change, safety and resilience, investment criteria and occupier demands.
Spurred into action in recent decades, primarily by government-enacted legislation, sustainability is now a major focus of the real estate industry. In June 2019, the UK government committed to further reduce greenhouse gas emissions in order to achieve a carbon neutral society by 2050. According to the Committee on Climate Change Progress Report to Parliament on Reducing UK emissions dated June 2020, buildings accounted for 18% of the UK's 2019 carbon emissions. The government's commitment to reduce emissions is driving the trend for sustainable and environmentally friendly buildings with high levels of energy efficiency and low-carbon heat.
The COVID-19 pandemic has expedited demand for buildings which prioritise the health and wellbeing of occupants. If used and operated smartly, buildings can be healthier environments. COVID-19 has accelerated the use of touchless technology – on equipment such as doors, lifts, sinks, toilets and water dispensers – improved cleaning regimes, and of engineering controls dealing with ventilation and air quality which will minimise the spread of disease. Density of office occupation is now back on the agenda and the desire to have green spaces and break-out areas which enable social distancing has become high priority. There are discussions about COVID-compliant buildings which may be the next evolution of the building benchmarking schemes.
The office environment impacts on the health, wellbeing and productivity of its occupants and in consequence, the rental income and capital value of the asset which affects all industry stakeholders. There is no shortage of evidence that the internal office environment impacts on the productivity of its occupants. The BCO report on Designing and Measuring Productivity in Offices dated November 2017 reports that productivity benefits of 2–3% could be gained by improving the working environment. The report quantifies the value of productivity gains to occupiers as roughly equivalent to 30% (in central London) and 75% (outside London) of the annual office rent.
A focus on both physical and mental wellbeing comes hand-in-hand with environmental factors and ‘greening’. As part of real estate investment decision making, environmental, social and corporate governance (ESG) benchmarks such as BREEAM, WELL Standard and GRESB are now embedded in the decision-making framework. In order to score highly, the sustainability criteria of a building is analysed, this includes, for example, the air quality of the indoor environment and the biophilia of the building. Biophilic design, or the way in which a building increases occupant connectivity to the natural environment, is incorporated in benchmarks such as the WELL Standard. Building benchmarking schemes are driving the market standards for sustainability and health and wellbeing, and in turn lender requirements. In the early 2000s BREEAM was a newcomer to the market, but now a minimum ‘excellent’ rating is a sustainable development planning requirement of most local authority planning departments.
In the immediate aftermath of the spring 2020 COVID-19 lockdowns, it became apparent that many people would like a hybrid approach to work, splitting their working week between the office and home. Landlords would be wise to consider what it is that people like about working from home in order to try recreate these conditions in the office environment and lure the workforce back there.
One draw of working from home is green or outdoor space which can be used in a socially distant manner. In a city office the options for green space may be limited to rooftop or outdoor terracing. This green space could have a variety of uses, from informal meetings, discussions and socialising, to lunchtime break-out areas where people can do their daily exercise, in the same way that they did while working from home during lockdown. In the longer term, terraces and gardens should lend themselves well to socially distant networking events. In a pre-existing office building, maximising use of the space and facilities which are already there and making them work flexibly is going to be key, as opposed to wholesale changes which may not be financially viable in the current economic climate.
With social distancing at the forefront of people’s minds, we might see a shift to regional cities reputed for their surrounding countryside and green environments. This could lead to the growth of ‘hub and spoke’ office networks. Regional cities have other selling points, including the ability to capture graduates from regional universities, and they often offer an alternative to the long commute on public transport which has fallen out of favour.
Out-of-town offices are also expected to increase in popularity. These are likely to have a different pull and shape than a city office. With office gardens and space around the office, lower rents and losing the commute could be a game-changer for some businesses. In order to reposition themselves for occupiers and investors, these out-of-town developments will need to be built or retrofitted to premium specifications achieving the highest ratings in the building benchmark schemes.
Climate change is driving the green agenda and planning policy now addresses the wider concept of ‘greening’, with policies to protect green spaces and to plan and manage green infrastructure. Public realm incorporating parks, gardens and outdoor space is more valued than ever in new place-making developments. In major new city office developments we are now seeing public realm occupy the most desirable space on the upper floors of buildings. Although public realm space is expensive, investors are driven by occupier demands and so we expect this trend to continue. Public realm also brings benefits to the wider community which align with planning policy.
The value of green space is likely to rise due to the COVID-19 lockdown. This leads to the question of who is going to pay for any improvements? Landlords and occupiers will be looking at existing leases to see where costs can be shared. Traditionally service charge provisions are negotiated, and it is not unusual for caps to be agreed and improvements to be excluded. This void inevitably leaves the costs of improvements with landlords. As many landlords will not have a budget for improvements for the foreseeable future, new developments are where we expect to see a significant move towards greening. These premises will be desirable for landlords to build, tenants to occupy and, backed by the leading benchmarking schemes, they will be desirable for institutional investors. We envisage further adoption of urban greening as we strive to become a carbon neutral society and new legislation supports and enforces the changes.
Related competencies include: Landlord and tenant, Sustainability