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Returning to the workplace – assessing the impact on commercial real estate

Returning to the workplace – assessing the impact on commercial real estate

April 24, 2023

Remote work has become the norm for many employees following the COVID-19 pandemic. While remote work has allowed for greater flexibility and work-life balance, there has been much speculation about how the return of remote workers to offices will impact commercial real estate (CRE) values. In this article, we investigate how CRE transaction values are affected by this global trend and how this differs depending on whether you’re in the UK, Germany, France and Spain.

The return of the remote worker – a global perspective

There are several common factors at play globally that we can point to regarding the extent of remote workers returning to workplaces.

As remote work became more prevalent, many businesses realised they could save on rent by downsizing their office spaces. With fewer employees coming into the office, companies needed less space, and many businesses decided to move to smaller, more affordable locations or even close offices altogether. This led to an oversupply of commercial real estate, particularly in urban centres.

As the world slowly recovers from the pandemic, many businesses are bringing their employees back to the workplace, at least part-time. While this could lead to increased demand for commercial real estate, it’s essential to consider how the return to the office will impact businesses’ decisions about office space.

For example, many companies now maintain a hybrid work model, where employees split their time between the office and remote work. This could mean businesses still need less office space than they did pre-pandemic. Additionally, some companies may have found that remote work has increased productivity and may decide to continue with remote work policies. This could mean that demand for office space remains low, even as more employees return to the office.

It’s also important to consider how the return to the office will impact different commercial real estate sectors. For example, businesses that rely on foot traffic, such as restaurants and retail stores, may see increased demand as more people return to the office. This could increase demand for commercial real estate in areas with high foot traffic, even as demand for office space remains low.

Overall, it’s difficult to predict precisely how the return of remote workers to offices will impact commercial real estate values. While some businesses may need more space as more employees return to the office, others may continue with remote work policies, leading to lower demand for office space.

As the world recovers from the pandemic, keeping a close eye on how businesses adapt and change their real estate needs is essential.

We’ve analysed how the returning to work trend differs by region. With other global factors such as higher inflation, higher interest rates and supply chain problems affecting CRE, the return to work element cannot be viewed in isolation. Whilst it’s hard to directly measure its impact on commercial real estate values with so many other variables, it remains a valuable guide for consideration as a significant contributing factor.


In the UK, there are signs that remote working has peaked following the pandemic. Employers and managers are keen to see more people back in the workplace. Tony Danker, Director General of the CBU, speaking on BBC’s Political Thinking with Nick Robinson, argues, “You ask most bosses, everybody secretly wants everyone to come back into the office,” he said.

According to Remit, the daily average number of employees working from their offices in England and Wales during the first full working week of September 2022 reached its highest level since May 2021. However, this peak only amounted to 31%. In the West End of London and Docklands, areas home to numerous banks and financial institutions advocating for employees to return to the office, office occupancy reached 50% on specific days during the week ending on September 9th 2022.

The financial sector has made no secret of its desire to return employees to offices. Even as long ago as February 2021, Goldman Sachs CEO David Solomon told a Credit Suisse conference:

“I do think that for a business like ours, which is an innovative, collaborative apprenticeship culture, this is not ideal for us. And it’s (remote working) not a new normal. It’s an aberration that we’re going to correct as soon as possible.”

And the balance of power is shifting in the UK. The power of employees to demand how and where they work is lessening as the threat of redundancies, and recession impacts the UK job market. We’re now starting to see redundancies across a range of sectors. Ford has cut 1300 UK jobs as part of a programme to cut 4000 jobs across Europe. British Steel is rumoured to reduce their Scunthorpe plant by 1200 employees, with Port Talbot also under threat. The UK retail sector has shed over 15000 jobs since the start of 2023 alone. Whilst these sectors are not necessarily high on remote working, they set the tone across other industries.

This is reflected in the proportion of vacancies on LinkedIn offering remote working. This has dropped from 16% to 12% in December 2022.

Impact on the UK Commercial Real estate market

There’s uncertainty on how the return to offices affects CRE investment and transaction values. The Carter Jonas February 2023 Commercial Outlook highlights that the situation is complex. 

High inflation in the UK leads to increased cost pressures for corporations, which is expected to intensify their emphasis on reducing expenses and improving productivity. While corporate real estate ranks as the second largest expense after salaries for numerous businesses, offering superior-quality workspace can also enhance productivity.

Even though there is a large amount of office stock available, there is a need for more quality space, which employers are looking for to create a vibrant working environment. This has driven an increase in prime rents, with the RICS Q4 survey predicting a 10% increase for 2023.

While rents for prime and secondary retail are predicted to decrease, the surveyed individuals anticipate a rise in rents for prime and secondary industrial properties, with net balances of +40% and +6%, respectively. Moreover, there is a heightened emphasis on eco-friendly and energy-efficient buildings as tenants strive to meet their ever-increasing environmental, social, and governance (ESG) objectives.

We believe that due to the current scarcity of new development, prime rents are expected to keep rising, leading to a further increase in the disparity between prime and lower-quality grade B stock rents.

According to Carter Jonas, commercial property transaction volumes show a fairly steep decline towards the end of 2022. They totalled £6.885 billion in Q4 2022 – 38% down on Q3 2022 and 68% down compared with Q4 2021.  However, the overall decline isn’t as marked with rolling annual sales for 2022 of £50.4 billion- only 8% below the five-year quarterly average, due to a very strong Q1 in 2022. The industrial and office sectors continued to receive the highest investments, but the office sector experienced the steepest decline in transactions of 69% in Q4 compared with Q3.

The CBRE Monthly Index, released in January 2023, reports that the overall capital values of UK commercial properties decreased by 13.3% in 2022, accompanied by a decline in annual total returns of 9.1%. This marks a significant shift from 2021, when the values and returns increased by 13.8% and 19.9%, respectively.

The trends will likely continue with inflation still over 10% and a further hike in interest rates in March 2002. The situation is fluid and, in particular, responsive to the Bank of England’s decisions on interest rates. We predict that with lower interest rates forecast for the mid-end of 2023, lower inflation and an increasing number of workers returning to the workplace, transaction volumes and valuations in quality commercial property assets will increase and revert to their 2021 levels.


Before the pandemic, remote work wasn’t widely embraced in Germany. However, since the home working requirement was lifted in April 2022, numerous businesses have started bringing their employees back to the workplace. The German government has supported this shift, expressing worries about the adverse effects of remote work on productivity and innovation.

Nonetheless, flexible work arrangements are predicted to continue gaining popularity in Germany, as many workers and companies have experienced their advantages. Therefore, the workplace in Germany will likely be a combination of remote and in-person work after the pandemic, with companies providing their employees with more flexible work.

According to a survey conducted by the Munich-based think-tank Ifo in August 2022, 25% of employees in Germany were still working from home part of the time. This represents a significant increase from the pre-pandemic figure of 15% of remote employees.

Prof. Oliver Falck, Director of the ifo Center for Industrial Organization and New Technologies, states that the proportion of employees working remotely in the German economy is stabilising at 25%. He expects this figure to remain relatively constant in the long term.

However, the average proportion of employees working remotely in Germany masks significant variations across different industry sectors. According to surveys by the ifo Institute, management consultancies in Germany are particularly likely to have staff working from home, with 72.5% of employees in that sector working remotely at least some of the time in November, up from 71.5% in August.

Remote working is also prevalent among IT service providers (71.7%) and in advertising and market research (60.4%).

The impact on footfall is worth noting. According to an analysis of phone-tracking movements published by Google, in Germany, footfall was 14 per cent below pre-pandemic levels in mid-October 2022, while in the UK, it was down 24 per cent. Unsurprisingly, office trips are more popular on the middle days of the week, while Monday and Friday show significant attendance drops.

And cities which host financial and business districts saw a larger loss of office footfall than in other major population areas, according to Google figures. Berlin saw footfall drop by 20% in October 2022 compared with pre-pandemic levels. The figure for the whole of Germany was a drop of 10%.

Impact on the German Commercial Real estate market

The EU forecast that Germany will experience a mild recession in the upcoming months, followed by moderate growth later in the year as energy prices decline, supply bottlenecks are removed and demand for exports returns.

Forecasts vary, but employment levels are expected to remain high, with only a slight increase in unemployment.

Savils point out that historically, every recession in Germany over the last 30 years has resulted in a decline in office take-up. We predict this trend to continue in 2023, with signs of diminishing demand for office space, such as an increase in the availability of sublet offices and a decrease in rental inquiries. Consequently, the rise in vacancy levels from recent years will persist and potentially accelerate.

The impact on rents is less clear. Even though there’s an oversupply of property generally, demand for quality prime real estate is increasing, as is the case in the UK, creating scarcity in this sector. This could represent an investment opportunity.

In 2022, Germany’s real estate investment market saw a transaction volume of €65.8bn, of which €52.3bn pertained to commercial properties and €13.5bn to residential real estate. Although this represents a significant decrease of 41% compared to 2021, it is only 7% lower than the 10-year average.

Commercial real estate prices are also declining. Deutsche Bundesbank’s March 2023 survey of commercial property prices in 7 major German cities shows an 11% drop in retail and office property prices for 2022.

Overall, there will likely be an upturn in transaction volumes and prices with lower interest rates and a recovering economy towards the end of 2023. Returning workers and a scarcity of quality office accommodation will push up demand. It’s hard to be precise with factors such as the war in Ukraine, but investors need the agility to respond quickly to a rapidly changing investment environment.


A study conducted by Ifop for the French think tank Fondation Jean-Jaurès has revealed that only 29% of French workers work remotely “at least once a week”, compared with 51% for Germany and 42% for the UK.

Furthermore, even French workers who work remotely seem to do so less frequently than their European counterparts. For instance, in Italy, 30% of workers telework for four to five days per week and 17% for two to three days, whereas in France, the corresponding figures are 11% and 14%, respectively.

“French people are often hesitant to change,” explains Sonia Levillain, author of the Little Toolbox of Remote Management and a professor at the IÉSEG School of Management in Lille. “This is a stereotype, but it’s also a reality.”

Although hybrid work has gained momentum in France since workers began returning to the office in June, many companies are now embracing a flex office approach with hot desking. However, Levillain says that “employees are very sceptical of it. They were attracted to the physical office – where they were working – because it was a sign of identity and belonging to the organisation.

The reluctance to work remotely may also be linked to how the French workplace has traditionally operated, with managers feeling a strong need to control their employees. Levillain explains, “historically, the management practices were not developed around trust and autonomy, but more of a top-down approach.”

In addition, social interactions play a critical role in decision-making in the French office. As these interactions have traditionally occurred informally, it has been challenging to replicate them on a computer screen. Levillain points out that “communication is spontaneous – it’s not organised and structured at a specific time with specific people.” She adds that managers value unplanned contact and interaction in the workplace. “You walk around the office, and you discuss things at the coffee machine because that’s a place where many decisions are made, and solutions are found.”

According to Levillain, shifting from the current informal office structure to a more structured one would be necessary for sustainable hybrid work. “From a cultural standpoint,” Levillain says, “I believe we still have a lot of work to do to accomplish that.

Impact on the French commercial Real estate market

Of nearly all the European countries, relatively low volumes of returning remote workers in France will have marginal impact on CRE valuations. Macroeconomic factors such as inflation, interest rates and low growth rates will largely dictate the environment for CRE valuations in the future.

And there’s increasing evidence that the economic downturn is causing a decline in French CRE transactions and asset values. The fourth quarter of 2022 saw a significant drop in investments in commercial real estate in France, which is believed to be a result of rising interest rates affecting activity. According to Immostat, which tracks transactions by investors over €4 million, the total deals for properties such as offices, retail space, and warehouses plummeted by 52% to €5.4 billion ($5.8 billion). The decline was even more pronounced in the Paris region, with deals decreasing by 62% to €2.5 billion.

During the fourth quarter, the average price of an office in the Paris region dropped by 1% to €7,980 per square meter, marking the lowest since Q3 2020. Throughout the year, investment in commercial real estate in France decreased by 2% to €25.5 billion, with the Paris region experiencing a 3% decline to €15 billion.

We expect this to improve during 2023 as interest rates decline. Still, the situation is complex with domestic issues such as strikes and the Government’s attempts to reduce the retirement age, affecting the investment climate.


In Spain, remote working has declined significantly since the pandemic. Even at its height in Q2 2020, only 16% of workers were working remotely. That figure is down to 7% at the end of Q2022, according to research from Randstad Spain.

In addition, Randstad has highlighted that 41.5% of homes in Spain are deemed “unsuitable for teleworking.” According to the study, suitable housing for teleworking includes enough space, such as an office or a room not used as a bedroom.

Impact on the Spanish commercial real estate market

Similarly to France, we don’t believe the return to work phenomenon will have anything other than a marginal impact on CRE values. There may be local differences. For example, Madrid has a higher rate of remote workers (12.5%) slowly returning to the workplace. But we don’t think this in itself will move the needle in terms of office rental costs. Macroeconomic factors and local conditions are far more likely to affect these.

However, CRE transactions are increasing in Spain, fuelled partly by the rapid return of foreign visitors following the pandemic. The year 2022 ended with a total investment of €13.2 billion in Spain, representing a 10% increase from the previous year. The retail sector accounted for the largest share of activity at 32%, followed by offices at 20%, residential at 19%, and hotels at 18%. The investor profile remains consistent with the pre-COVID era, with foreign buyers continuing to dominate the market. However, domestic investment has become increasingly important over the past year.

In conclusion

Regional differences affect the impact of returning remote workers to the workplace. The global macro-environmental factors affecting all countries will be the dominant factor, but local conditions, including the rate of returners, can also impact transaction values. In most markets, we expect transactions and CRE asset prices to recover in 2023, with declining interest rates, in particular, playing a part. But several unknowns are at play, including a possible banking crisis and the continuing war in Ukraine. In any event, investors must be agile and fleet-footed depending on which sector and region of the CRE market they operate in to adapt to variable and unpredictable market conditions.

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