Barclays: UK house boom set to continue as demand for offices slumps

Barclays (BARC.L) is predicting that demand for offices could fall by 20% in the UK while the residential property market will remain buoyant.

“The COVID pandemic has catalysed a number of real estate trends that are likely to last long after” the pandemic subsides, the bank said in a report.

Barclays said that working from home is here to stay because both employees and employers have discovered that remote work can be extremely productive. It expects a hybrid model to be most common, with employees splitting their work week between the home and office

As a result, it expects office demand to be reduced by up to 20%.

It also said that while savings on real estate may be limited because as a percentage of overall costs of a business they are relatively low, they are attractive because they are immediate. Businesses can start taking advantage of them as soon their lease expires, without seeing any adverse effects on the remainder of the business.

And it doesn’t require risking productivity – “as the COVID experiment has shown... productivity was unchanged (or even higher) compared with the traditional office situation," the report said.

Read more: Lloyds to axe 20% offices as it moves to 'flexible working'

It added that cuts to office space will be driven by larger organisations and by the TMT (technology, media, telecoms) and professional services (finance, accountancy, legal, real estate) sectors, in particular.

"Remaining city centre premises should take on a different character, becoming a focal point for employees to gather periodically, rather than a daily destination. Those buildings will need to have superior features to compel staff to attend," Barclays said.

Meanwhile, it expects demand for residential properties to remain high in both suburbs and cities.

"Reduced spending on services, low interest rates, and high savings balances coming out of the pandemic will support demand for all kinds of residential properties for years to come," the report said.

A recent survey showed a shortage of people selling their homes has meant demand is increasingly outstripping supply, as house price rise accelerates across the UK.

Barclays also noted that there may be an increase in conversions of office space to residential.

This could "offer a way for landlords to prolong the economic life of buildings that would otherwise become obsolete," it said, but warned that conversions are costly.

Watch: The £2bn Green Home Grants scheme explained