Nicer offices are coming back. Google bet another $1 billion on it
The company’s purchase of a London office complex highlights a shortage of the kind of space post-pandemic work demands
The big brains at Google have to work somewhere, and they often have to be in the same place. Yet, premises that can serve a large, collaborative staff in this new era of work are scarce. No wonder the online giant has snapped up some prime office space in London.
Google last week agreed to buy one of its London sites for 763 million pounds ($1 billion). The firm is also building a mammoth campus a couple of kilometres to the north. Meanwhile, Facebook doubled its office space nearby, and Google struck a deal to buy a New York office last year.
For the tech industry, the need for quality office space has intensified in the pandemic as a result of increasing headcount. The snag is that in cities like London, there aren't enough large buildings in prime locations with decent collaboration spaces and strong environmental credentials.
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Of course, Google could just have decided to renew the lease on its building on a longer term. But its parent, Alphabet Inc., has a net cash pile of $114 billion, and the London office was for sale. So why not buy? The deal secures a prime site at the intersection of two of London's north-south and east-west subway lines. Google can do what it wants to the structure without permission from a landlord. It's already divulged some of what's in store, with plans for sound-proof booths as well as outdoor working spaces.
Plus, there are clear political benefits at a time when Big Tech is under increasing scrutiny. Google positioned the transaction not as a property purchase but as an investment in the UK Rishi Sunak, the finance minister eager to promote Brexit Britain, tweeted approvingly that the deal is an "investment in jobs" and "a big vote of confidence." That $1 billion outlay is already generating non-financial returns.
Finally, ownership gives Google full control over the related data. Landlords are increasingly analysing office usage to keep energy consumption to a minimum. Those insights must be valuable to a company in the information business.
Many large corporations are keen to get workers back together in person. Their approval of work-from-home has its limits. A recent survey of nearly 700 European business leaders commissioned by analysts at UBS Group AG found that only 10 percent agreed that WFH was at least as productive as being in the office. The relaxation of home working guidance in the UK on Wednesday triggered a request from financial firms including Citigroup Inc. and Goldman Sachs Group Inc. for staff to come back.
But most big corporations can't afford to buy their office and turn it into something resembling a cross between a boutique hotel and a national exhibition centre. And most will not have massively upped their headcount in the pandemic. They are nevertheless likely to be looking to lease a building that's different to the one they're in.
Landlords in London, Paris, Madrid and Berlin report new tenants requesting more meeting spaces and fewer desks, good ventilation and environmentally friendly credentials, according to Bloomberg Intelligence. More than half of European business leaders expect to permit WFH for at least one day a week, mostly for three days, according to the UBS survey. Hence they wanted less space even as they were hiring. The pressure to cut square footage is exacerbated by the fact that offices are often the biggest contributor to their carbon footprint.
Take Lloyd's of London. The insurance market is reviewing its future in the historic Richard Rogers-designed building it has occupied since 1986. With underwriters increasingly conducting business in nearby offices even before the pandemic, the review was probably overdue.
For commercial landlords, the post-pandemic world poses a big challenge. Newly constructed or refurbished premises that have strong ESG credentials and excellent collaborative spaces will be in high demand from tenants. Older buildings subject to planning restrictions may have to find alternative residential or leisure uses. Office workers can look forward to a better working environment. For some it will come sooner, while others will have to wait.
Chris Hughes is a Bloomberg Opinion columnist covering deals.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.
