In the new Nordea On Your Mind, Johan Trocmé and Viktor Sonebäck from Investment Banking’s Thematics team explore how Covid-19 has transformed our ways of working and what it means for the office of the future.
COVID-19 a unique shock driving permanent changes in our behaviour
The COVID-19 pandemic differs from previous crises in its suddenness and severity, as well as how quickly corporates have recovered from the initial shock. Unlike in the global financial crisis of 2008-09, the impact has varied enormously across different sectors. Those dependent on consumer mobility (such as travel, hospitality, retail and entertainment) have suffered badly, while those providing (often digital) solutions for new behaviour have benefited. In fact, the big global tech companies have seen no downturn, but rather an acceleration of their revenue and earnings growth. With increasing shares of populations getting vaccinated, the pandemic will hopefully soon cease to dictate our work and consumption patterns. But even if forced social distancing goes away, will we really go back to exactly the way things were before? We think not.
New norm likely to be a hybrid model with a greater share of remote working
Social distancing reduced workplace mobility across the Nordic region by a third during the spring of 2020, and time spent commuting and at workplaces still remains 10-25% below the pre-COVID baseline today.
Corporates seem to have adapted to new ways of working remarkably well. As an illustration, Nordea doubled its share of remote working, saw a 99% reduction in business air travel during the pandemic, and has shown a strongly improving financial performance over the same period. Looking at recent major surveys as well as announcements on future ways of working from a sample of large corporates, we believe a new norm of hybrid working models for white collar jobs, with an increased share of remote working, is emerging.
The future for office real estate
According to the 2020 Fortune/Deloitte CEO survey, employers see 26% less need for office space in 2022 compared with 2019. There is already a long-term trend of a falling number of square meters per employee (-33% in 2010-17). Increased remote working should fuel this further, but will require investments to make office facilities more flexible, as well as major scheduling efforts, as offices will need to be rigged to cope with the peak load number of staff.
To reduce the needed space, all employees cannot be in the office simultaneously on any given day of the week. We believe the nature of the office will change, with employees going there mainly for interaction and collaboration, while individual tasks will be done remotely to a greater extent.
Tomorrow’s offices will need to be designed, located and sufficiently attractive to accommodate this. We see potentially increased polarisation for office space demand. Modern, flexible offices in prime locations could be even more sought after, while interest in non-collaborative premises without infrastructure for remote or virtual work practices could fade. With increased remote working and upgraded premises, we believe a 20-30% long-term reduction in office space for current workforces does not seem unreasonable.
Expert views from retail, telecom equipment, real estate and banking
To get a variety of perspectives on our changed behaviours from COVID-19 and the implications for corporates, we interview Alexander Izosimov; CEO of Russia’s leading consumer electronics retailer M.Video-Eldorado; Peter Laurin, head of telecom equipment maker Ericsson‘s business area, Managed Services; and Ronald Bäckrud, head of region Stockholm at Sweden’s biggest real estate group (and big office landlord) Vasakronan. We also talked to Nordea‘s Head of Group Workplace Management Trine Thorn and her colleagues Joakim Laurén and Peter Watz about the changed ways of working during the pandemic, and how this may evolve going forward.