CAPITAL WATCH

Over the last 20 years, London’s geography, skyline and commercial real estate market have experienced major changes. Businesses are less wedded to traditional districts, and the monolithic corporate HQs of the 1980s and 1990s are being replaced by progressive architecture designed for wellbeing and productivity. Meanwhile, digital disruption is creating young, agile companies that are growing at an accelerating rate. So, given the pace and scope of recent change, how will London do business in the future? Location, location, location L ondon’s office market has traditionally been defined not only by its wider markets such as the City and the West End, but also by their respective core districts – where competition for space has been most intense and upward pressure on rents the strongest. The disparity in quality of stock and pricing between the core and out-of-core markets has already diminished, particularly in the City. Districts formerly considered fringe locations now achieve rental levels on a par with those formerly considered “prime”. Companies are increasingly focusing on more than just proximity to business agglomerations when considering an office move. Office space is now more than just a place to do business: as the boundaries between work and home life become increasingly blurred, proximity to amenities and culture has superseded proximity to competitors, and in some cases, clients. This will be one of the most important trends in shaping London’s future. Not only will the traditional culture and amenity rich fringes transform into vibrant office locations, the traditional cores will also have to evolve to become more than just business locations. The only way is up London’s office-based workforce is growing, with 83,000 additional jobs forecasted over the next two years alone. Although businesses will now consider occupying areas formerly considered to be secondary locations, the outward expansion of London’s CBD cannot continue ad infinitum. Increasing demand for residential space close to the city will provide a barrier to outward growth. Once this expansion reaches its limit, the focus must turn towards improving public realm, culture, retail and leisure amenities in existing areas. London will stop expanding outwards and begin to expand upwards. This expansion will be focused on providing mixed-use accommodation with ground floors given over to retail and public realm, improving permeability and further eroding the boundaries between London’s traditional districts. As occupiers’ needs change, construction methods will follow. In 2016 the average age of S&P 500 companies was 24 years. This is forecast to shrink to 12 years by 2027. Landlords will see churn of occupiers increase dramatically, but advances in technology will enable the cheap and quick construction of bespoke space as each tenant changes. Dubai has announced that 25% of new buildings will be 3D-printed by 2025. London will utilise similar technology to shorten construction times and costs, which will encourage the development of new and innovative spaces. OPINION HowWill London Do Business in the Future? What next? The seeds of many of these changes have already been sown. London’s prominence as a global tech hub will grow, although not necessarily at the expense of its status as a global financial capital. As fintech plays an increasingly important role in global finance, London’s reputation as the industry’s innovation hub will strengthen. London is evolving, and the pace of its evolution is increasing. As the urban historian Leo Hollis wrote, London is a city that has reinvented itself upon the remains of the past. We think that London’s present points to a bright future. “We are a technology company” As we look to the future, digital disruption will have a significant effect on London’s business sector composition, as well as where and how those companies occupy office space. As technology pervades every aspect of business, the line between traditional businesses and technology firms will begin to blur. In 2017, Goldman Sachs CEO Lloyd Blankfein proclaimed: “We are a technology company.” This will be the new normal. Firms will also use technology to replace more traditional roles. Swedish finance firm Nordea Bank recently announced its intention to cut 6,000 jobs in a range of areas including asset management, replacing the roles with automation and robotics. Nordea has already increased its annual profits by 31% through a reduction in staff of around 2,500. Digital disruption will reduce headcount in the traditional business roles, but there is likely to be a corresponding increase in tech employment as firms strive for competitive advantage through the most innovative AI and automation solutions. Much of this will be conducted in project space leased by big business to attract and retain talent separate from the corporate HQ. Technology will also fundamentally alter the workplace. The office will continue to be relevant in terms of staff management and innovation, but advancements in speech recognition technology will render workstations redundant for many functions, as keyboards and monitors will no longer be needed. Telecommuting will encourage less frequent use of dedicated desk space; the office will increasingly represent touchdown space for staff. Goldman Sachs CEO, Lloyd Blankfein, proclaimed “We are a technology company” 11 OPINION 10 OPINION By Patrick Scanlon, Head of UK Offices, Research & Insight patrick.scanlon @cushwake.com CUSHMAN & WAKEFIELD CUSHMAN & WAKEFIELD