More than half of City of London workers will not return to the office this year despite the capital’s new pledge to reinvent itself and emerge stronger from the Covid-19 pandemic.
Fifty-one per cent of City employees are currently working from home and do not expect to head back to the Square Mile until 2021, a new study from UK accountancy consultancy Theta Global Advisors showed. However, the reluctance to return to the office comes as the City of London Corporation sets out on a mission to recharge the capital by 2025 with new start-up hubs, affordable work spaces, digital funds and entrepreneur-friendly stock exchange reforms.
Catherine McGuinness, policy chairwoman at the Corporation, said the capital’s role as an international business hub is facing a number of challenges, from coronavirus to the UK’s exit from the European Union and increasing protectionism across the globe.
“Just as London enters tighter restrictions might seem an odd time to talk about the future – but it’s more important than ever than we use this time to prepare, and ensure that London is in the best possible shape when the recovery restarts," she said.
The City's call to action comes at a difficult time for London, which moved from medium to high alert on the government’s lockdown programme earlier this week, placing nine million people under new rules that ban different households from mixing and encourage office employees to work from home.
Meanwhile, Britain's economic recovery lost more steam this month as a resurgence of the pandemic hit the hospitality and transport sectors.
Private-sector growth fell to a four-month low of 52.9 in October from 56.5 in September, according to an early "flash" reading of the IHS Markit/CIPS UK Composite Purchasing Managers' Index.
“Optimism fell to levels last seen in May, and unpredictability remains the only predictable conclusion for the remainder of the year," said Duncan Brook, group director at the Chartered Institute of Procurement and Supply.
“With more lockdowns, Brexit within touching distance and new government support at weaker levels than when the pandemic hit, it is clear businesses will have to figure out their own survival tactics as the economy heads back towards square one.”
The City’s new report, London Recharged: Our vision for London 2025, published earlier this week in conjunction with Oliver Wyman and Arup, called for more start-up incubators to promote innovation, such as Station F in France, that provide fledgling ventures with access to government, academic and business experts.
It also recommended transforming London’s office stock into “hyper-flexible” affordable workspaces to attract small to medium enterprises and creatives, such as artists, back into the city centre.
Other recommendations include helping businesses to benefit from technological advances by creating a digital adoption fund, and making it easier for SMEs to access growth finance. A regulatory review of listing structures could secure the UK’s competitiveness in relation to other listing locations, the report said, while “flexible working” transport season tickets would lure commuters back in and simpler visa structures and immigration procedures would attract skilled migrant workers.
“The capital’s success throughout history has been a story of constant reinvention,” said William Russell, the 692nd Lord Mayor of the City of London. “A vibrant London will help to drive our recovery forwards."
One of the biggest barriers preventing this blue-sky thinking from getting off the ground is the City workforce’s reluctance to return to offices.
London led the way for home-working at the start of the pandemic, with 57 per cent of residents doing some work from home in April, according to the Office for National Statistics - 10 percentage points more than the UK average. But normal levels are some way off, particularly in the City.
Forty-five per cent of City workers polled by Theta Global Advisors, say the pandemic has made them realise what a poor work-life balance they had pre-lockdown, something they don’t plan to return to in future.
Separately, 63 per cent say the workplace must change drastically for the better to avoid losing its best talent to freelancing and consultancies.
"There is no doubt that remote working will continue for the foreseeable future and even, to an extent, post-Covid; London needs to cater for this," Chris Biggs, partner at Theta Global Advisors, told The National. "A lot of the old-fashioned, large offices and property will need to change and work for businesses who require more flexibility. Large, expensive spaces will become less popular and smaller, cheaper, more agile spaces will be needed."
There are signs of life in London’s office market though, with major companies in the process of big office moves. Google, for example, is in talks to buy a London office complex for as much as £800 million ($1.05m), while Land Securities Group, one of the country's biggest real estate companies, unveiled plans on Monday to sell assets including its leisure properties and reinvest the proceeds in developing new offices and mixed-use projects.
Meanwhile, Netflix and Morgan Stanley are undertaking big office moves that show demand is recovering after months of grim office rental data with deals slumping by almost half in the financial district this year.
While some estimates predict an oversupply of office stock, with vacancies soaring amid tightening lockdown rules and the rise of the remote worker, the City of London report said: "The office is not dead, it will just be different."
The City's 2025 plan to open up the Square Mile to new business through start-up hubs, tech sandboxes, outdoor gyms and better commuting options, is vital in the pandemic era because of the area's small residential community and reliance on the demands of office worker.
Ms McGuinness said she was “concerned in the short term about the lack of footfall” the area was seeing, while Adam Marshall of the British Chambers of Commerce said London’s recovery is “a tale of two cities: those who could work remotely, and those who couldn’t”.
To make socially distanced commuting viable in what is a traditionally crowded place, the five-year plan wants to permanently expand thoroughfares dedicated to walking and cycling and provide inexpensive space for creative company incubators and art hubs.
"The transport network needs to become more efficient and reliable, particularly with the added safety concerns of Covid. Furthermore, for people to travel into London, investments by large organisations, creative and technology initiatives, trade bodies and foreign interests need to be attracted to London to make it ‘the place to be,” Mr Biggs said .
The City also wants to boost weekend and evening visitors by half by 2025, though “curation and, possibly, subsidies” might be needed to break up office dominance. The report suggested a skateboarding park could help make the district “a place that attracts people from all generations and backgrounds".
The report used Miami’s Wynwood art district as a potential model. “Corporates stuck in long leases could explore offering up unused office space as artists’ residencies or pop-up galleries,” it said.
The pandemic is not London's only challenge. With the end of the Brexit transition period looming, the City faces losing lucrative access to the European Union from January because the EU will not allow banks in Britain to offer investment services to customers in the bloc.
Last month, JP Morgan Chase moved about $230 billion from Britain to its Frankfurt-based subsidiary because no agreement on finance is in place. It also relocated about 200 staff from London to cities such as Paris, Milan, Frankfurt and Madrid, with staff receiving six months of commuting and accommodation support to cover the cost of the move.
The EU's banking watchdog said in July that lenders using the UK as a gateway to the European Union must fully execute their plans for serving EU customers before the Brexit transition period ends in December.
While JP Morgan has made the biggest shift to Frankfurt, Citigroup, UBS Group and Standard Chartered have also bulked up operations in Germany’s financial hub.
In January, global consultancy EY said financial services firms had moved almost $800bn in assets out of Britain since the Brexit referendum in 2016. A third of the 222 companies tracked in the study expressed intentions to relocate operations.
Britain’s economy has already suffered significant damage from the Brexit process, even before the end of the transition period, ratings agency Moody’s Investors Service said on Thursday.
It estimates the UK economy is 2.5 per cent smaller than it would have been without the Brexit process.
Tuesday’s report called for simpler immigration procedures for skilled workers after Brexit, as well as a review of stock-listing regulations. “The goal should be to motivate equity listings in London, including within the tech sector, where competition is particularly fierce, while maintaining high corporate governance standards,” the report said.