Since the start of the pandemic, there has been fierce debate about the future of workspaces.
Before Covid-19, office vacancy rates were below 5%, according to data from Colliers International. In 2021, the company estimates that London office vacancies will reach 10% in the first half of the year. As businesses look to scale back their office footprint, there are concerns that a glut of office space will flood the market as demand declines.
However, there are reasons to believe in the resilience of the office sector and that businesses will see the benefits of what offices have to offer, especially where collaboration and creativity are at the heart of their business model, or where work cannot be carried out from home long term.
The technology and science industries stand out in particular. Technology, media and telecoms companies rely on innovation and development to grow, benefiting greatly from office environments that enable creative collaboration.
Similarly, the life sciences sector is reliant on lab-based work and companies need a significant footprint to carry out their work. High-growth companies such as these also use premium offices as a way to attract the best talent. These sectors will fuel the office boom in the UK in the coming years.
To some extent, we’re already seeing this happen. US tech giants such as Facebook, Twitter, Google and Netflix have stipulated that they will continue to grow their presence in the UK. All four companies reiterated their commitment to London office space last year, with Google confirming plans for a new “landscraper” in King’s Cross.
In addition, in the first three months of the year, the UK tech sector attracted record investment of close to $8bn, according to entrepreneur network Tech Nation.
The so-called ‘golden triangle’ of Oxford, Cambridge and London has already attracted significant investment from life sciences companies. The King’s Cross area has attracted attention as the epicentre of much of this investment, including the Crick Institute and the Wellcome Trust.
The tech sector in the UK is growing rapidly. London start-ups raised $10.5bn of funding in 2020, despite the pandemic and the shadow of Brexit, while the UK market currently attracts more tech investment than any other European market.
The life sciences sector is also a burgeoning industry in the UK, with a recent NLA report predicting that it will be the beneficiary of billions of pounds of investment in the coming years. Despite this growth, the market remains chronically undersupplied and rapid development is needed to boost availability to meet this demand.
With the amount of space in commercially run labs across London still under 100,000 sq ft, there is an opportunity for investors to take advantage of the expected boom in the sector.
Given the immaturity of the market, there is currently a window of opportunity for investors to snap up space, including for development and to reposition existing stock.
While the office will undoubtedly change in the post-pandemic world, investors should be optimistic. The growth of sectors such as tech and life sciences will drive demand for workspace. Investors should take note of the opportunities now, to ensure they are well placed when demand picks up in the near future.
Manish Chande is senior partner at Clearbell Capital