For British commercial property, a critical fork in the road after Covid

The world of British real estate is at a crossroads. In one direction there are fantastic opportunities to bring about a very much healthier property scene and greatly to improve the built environment.

In the other, these opportunities are squandered, jobs and investments dribble away and the landscape is littered with white-elephant developments that no-one wants but which cannot be put to better use.

Whichever direction we take, one thing is certain. A huge upheaval is on its way, the proximate cause of which is the coronavirus epidemic but which would have happened anyway, sooner or later.

At the heart of this upheaval is a simple fact: everything we thought we knew about commercial real estate is turning out to be wrong, which by extension means that much of what we thought we knew about residential property will also turn out to be hopelessly incorrect.

Until, metaphorically speaking, the day before yesterday, commercial property was a "banker". Pension funds and other institutional investors have piled into UK real estate in search of what seemed to be a guaranteed five per cent return. So-called "starchitects" unveiled plans to build bigger and taller office developments that could eclipse the Shard, the Walkie Talkie and the Cheese Grater.

Demand for office space was going in the same two directions: larger and higher. This was especially true for London, as the City and Canary Wharf sought to cement their role post-Brexit as Europe's financial capital.

All of this, of course, was predicated on the continuing need for professionals and other white-collar workers to travel to, and be housed in, large office developments. From the "tele-cottages" of the Eighties to the "WFH" (working from home) culture supposedly taking route in this century, there has been much talk of "goodbye nine to five", but talk has all it has seemed to be, as commuter numbers have soared and the consequent demand for workspace has gone the same way.

This has had knock-on effects in the residential sector, where a remorseless increase in prices has distorted property values out of recognition. In the Seventies, mid-level civil servants could afford to live in Kensington, teachers in Islington and local government officers and their families in Putney. Any such suggestion in recent years would have been met with a hollow laugh, as even well-paid professionals found themselves commuting from ever-more-distant locations. Fifty years ago, Suffolk and East Sussex had seemed a little far flung; by the turn of the Millennium, East Devon and Lincolnshire were being touted as "commutable".

This entire process is now in a state of flux, with London's Mayor Sadiq Khan last week warning that the Covid pandemic has created and 'existential threat' to central London because commuters will choose to work in offices in suburbs in future.

Whilst I don't share his doomsday predictions, coronavirus has certainly opened the eyes of employers, professionals and office workers. Ordered, in effect, to work from home, many millions have taken to it like ducks to water, and employers are questioning the need for vast white-collar warehouses.

Potentially, there are two mutually beneficial developments at work. The at least partially irreversible trend towards great flexibility and homeworking reduces demand for office space thus, in theory, freeing commercial real estate to be repurposed for housing.

Such a shift would bring middle-income families back into the centre of our cities, especially London. No longer would the middle of towns be largely the preserve of either the very rich or those living in subsidised social housing. In turn, the ever-lengthier commute would cease to be a necessity.

There is, however, a big "but" here, in that an absolute pre-condition for taking this fruitful fork in the road is reform of our planning system. Architects are ready to go with the repurposing of commercial real estate, and cleaners and maintenance people are prepared to switch from commercial to residential work at the drop of a hat. But this will not happen without radical change to planning laws that take years to reach decisions that Switzerland, for example, can take in just two weeks.

Will we take the fruitful or the barren turning? That is very much up to us.

Javad Marandi OBE is a British entrepreneur and investor.