As businesses ponder whether or not to bring their employees back to work, a wider debate about the longer-term plan for corporate office space is taking place: do companies stick with their traditional city HQ or shift to a hub-and-spoke model?
The model is not new but has come to the fore again as Covid-19 has forced businesses to re-evaluate their real estate costs and prompted employees to consider whether they want to return to lengthy daily commutes.
While a significant shift from large offices in city centres to a smaller hub with a cluster of satellite offices in suburbs and towns has yet to take place, many large corporations have publicly said they are reconsidering the size and shape of their office network.
Andy Pyle, KPMG’s head of real estate, says the move is being actively considered for several reasons. First, there is the potential to save money by downscaling in cities and taking cheaper regional space.
“I’ve spoken to a lot of those big occupiers and I don’t think anybody is talking about shutting the corporate HQ and moving lock, stock and barrel out of the city,” says Pyle. “But everyone I’ve spoken to is looking to take cost out of their real estate footprint.”
Everyone is looking to take cost out of their real estate footprint
Andy Pyle, KPMG
The move to working from home has also led workers to rethink how often they need to travel to a large HQ. Pyle says that satellite suburban offices do not necessarily require the acquisition of new office space.
“A lot of the banks are looking at their networks and seeing if they’ve got surplus space in branches, which they could perhaps partly convert into touchdown office space to save people commuting into the centre of London.”
In July, Workthere, Savills’ flexible office specialist, carried out a survey of 92 flexible office providers in the UK, which showed that businesses searching for suburban office space was the key factor driving take-up of flexible office space that month.
However, Lauren Roth-Brown, a transaction manager in the cross-border tenant advisory team at Savills, says that while in principle the hub-and-spoke model looks attractive, there are a number of factors that need to be taken into consideration. “These might include commute times, availability of public transport around the ‘spoke’ offices and the provision of local amenities,” she says.
A recent survey from flexible office provider Spacemade found that 43% of people would like to spend at least some time in a local office every week, with the most popular option being two to three days in a local office and two to three days in a central HQ.
Spacemade co-founder and co-chief executive Dan Silverman says enquiries for regional hubs from large companies have leapt recently. “What’s coming through is this hybrid model. We’ve found that most people don’t necessarily want to work remotely five days a week and at the same time don’t want to be commuting every day into the HQ building,” he says.
Jonathan Gardiner, head of the national office agency at Savills, agrees there is a lot of interest in the model but says little of the talk has translated into action. “I’d love to say this is definitely happening, but we haven’t seen it yet. There are quite a few mid-sized corporates looking more strategically at this but they’re not making any quick decisions.”
He adds that the move to a hub-and-spoke model could have major implications for the future pipeline of development. “There will clearly be a focus on who builds, how much and where. If annually the City of London delivers 3m sq ft of new supply, maybe in the future that looks like 1.5m sq ft.”
The question is: will the regions account for the other 1.5m sq ft as more businesses shift to a hub-and-spoke model – or will that space be lost forever?