05What this means for future working in London
It is not clear how things will settle in the coming years, and what the results of the experiment will be but where central London finds itself today does, at least, provide a likely floor to what is likely to happen in the future. Given this, the following sets out three scenarios using this bounding in order to outline the uncertainties over what will happen and what the potential longer-term implications of each scenario would be.
Scenario 1: Hybrid working continues to match current patterns
This is a world where weekday Tube exits from ‘office’ stations in and around the City remain around 62 per cent of pre-pandemic levels, with Thursdays – the most popular day – up to 70 per cent of pre-pandemic levels. The volume of people exiting on Tuesdays, Wednesdays and Thursdays (daily average of 717,000) is much higher than Mondays and Fridays (an average of 546,000), and 2 to 3 days in the office per week is the most popular pattern.
The long-term implications to consider in this scenario are the impacts on:
Productivity and pay
This is the most important, and most contentious, implication. If there is no productivity impact from a hybrid approach to working, then there will be no long-term impact on the national economy from a greater amount of home working. However, there is very little evidence to date regarding whether this is the case, both in terms of whether there is an impact and in terms of what the size this impact is likely to be. For example, if there is a productivity hit, is it linear, so that the loss for two days’ home working is double that of one day? Or is the hit for one day much less than that for two days?
The question to answer is whether a two- or three-day office week is enough to establish and sustain social bonds, maintain creativity and facilitate on-the-job learning to the level that a five-day office week would do. Agglomeration theory would predict that this is not the case – the serendipitous nature of how new ideas are generated would mean that more limited face-to-face interactions would create a hit. It seems likely though that this would not be linear if tasks not requiring input from colleagues are done on home working days (e.g. admin tasks); creativity would fall by less than 40 per cent in a scenario where people spend 40 per cent less time in the office (by working two days remotely).
For London, though, the challenge is not just maintaining productivity levels in a different model of working arrangements; it is to kickstart productivity growth, which had flatlined since the Global Financial Crisis.66 The big risk here is that hybrid working sees a further deterioration in productivity growth off the back of a poor performance over the previous decade and a half at a time when the London economy needs to move in the opposite direction.
If this is the case then there would be a knock-on impact on wages and standards of living. If productivity rises less quickly than it would in a world where office working is the default, then this should feed through to lower wage increases (off the back of already poor wage growth in the Capital since 2008). There is an argument that workers are willing to trade this against the benefits of greater home working.67 But people should at least be clear that this trade off may exist – working from home may mean immediate lower commuting costs but could mean lower wages in the longer run.
It could also have an impact on skills accumulation and career development. If less time is spent in the office, and older workers in particular spend less time there, then the ‘unofficial apprenticeship’ that happens from face-to-face learning would be reduced, with implications for future promotions, wage increases and standards of living.
Public Transport
The public transportation system would need to adapt to a more permanent working pattern shift. London’s transport system (TfL) is particularly vulnerable to the shift to hybrid work because it is far more reliant on fare revenue than its global counterparts, with more than 70 per cent of its income coming from ticket sales.68 The result is that the pandemic has created a large funding gap.
The options for TfL in light of no further increase in government subsidy are either to cut services or find an alternative funding model in order to stay afloat. On the former, cutting services would lengthen travel times, meaning that the number of people within commutable distance of London would shrink, weakening the matching benefit of agglomeration and so making London relatively less attractive for businesses. It would also make tackling climate change and air pollution more difficult in the Capital. On the latter, TfL’s ability to shift its funding model is constrained by legislation – it does not currently have the power to raise non-fare revenue in the same way cities like Paris, New York, and Singapore do.
Car usage
If workers spend more time in a lower-density suburban environment, particularly outside of London, then car usage could increase as car dependence increases. In 2011, 90 per cent of commutes into central London were undertaken by public transport, by foot or by bicycle. Given the less extensive coverage of public transport in outer London and beyond because of their lower-density nature, any travel that is done on home working days is much more likely to be done by private transport.69 This would likely be compounded if TfL had to subsequently cut its services.
National data on transport usage supports this. Car trips returned very close to pre-pandemic levels in 2021, despite reduced commuting because of increased home working, while public transport usage trailed well behind.70
Property market
In principle fewer working days per employee reduces the requirement for office space. Crucially, this depends on any one company’s workforce being staggered throughout the week (a trend that neither the TfL nor the survey data show has seen to date) rather than coming in on the same days, and the ability of a company to adjust its space due to its tenancy agreement and the nature of the building it is in.
If workers were staggered, and there was no drop in the output from these workers, then this would lead to an increase in profits due to the cost saving from lower rents. A reduction in overall demand would then pull down the cost of space across central London, creating a cost saving for those companies that negotiate their lease and do not downsize. How much this saving would be would depend on whether lower rents attract in businesses that were previously priced out of central London.
If workers aren’t staggered, and so come in on the same days each week to maximise the benefits of face-to-face interaction, this means that similar amounts of office space will be required to that of a pre-pandemic working pattern. The result would be that there would be no material cost saving. If productivity does fall as a result of hybrid working, then this is the worst outcome for businesses, as profits decline while property remains a fixed cost.
The data suggests the latter is playing out so far. As set out above, the fact that commercial rents have not substantially fallen suggests either that few companies are reducing floorspace yet or that any reduction in floorspace is being offset by increasing demand from companies moving into central London.
Scenario 2: Hybrid working persists, but central London’s economy continues to grow
This first scenario limits itself to looking at a pre-pandemic baseline in terms of total number of jobs. It is possible, though, that, even in a hybrid world, the number of workers in central London exceeds the pre-pandemic baseline if the number of jobs in central London continues to grow in the way it did in the decades before the pandemic. If agglomeration continues to be important, then this is a likely outcome.
The implications for the transport network depend on what happens on peak midweek days and how many jobs are created. Because office working still remains considerably below its pre-pandemic peak, there would need to be considerable jobs growth for usage on a morning peak to outstrip that of pre-pandemic levels.
However, if there was a further increase in the popularity of Wednesdays and Thursdays towards pre-pandemic levels without an increase in working on other days, this would pose a particular problem. It would mean that London would require the same Capital investment in transport and an increase in day-to-day running costs as would be the case in an expansion on a five-day commuter model. The economics of providing this would clearly be more challenging and present the worst-case scenario for TfL and Network Rail.
Scenario 3: Ways of working return back to what they were like in 2019
An upper bound limit is a one where working patterns return to what they looked like pre-pandemic, with four to five days in the office being the most popular pattern and the number of jobs in the centre of London continuing to grow. In this scenario, central London firms see that there is a competitive advantage associated with having their workers spend their working time in the office, and those companies that downsized since the pandemic have to readjust to larger footprints.
If this were to happen, then the challenge for the Capital would be as it was pre-pandemic: to deal with the costs of growth, making sure that enough commercial and residential space is provided and that there is sufficient investment in the transport system to deal with rising congestion to address the Capital’s poor recent productivity growth.
While this third scenario may seem unlikely, given the stalling in the return to work that the TfL ridership data suggests, what is clear is that all of these scenarios are far above what was widely predicted in 2020. Even if there are no productivity implications from less time spent in the workplace, the scenarios above show that where the equilibrium settles on this will have considerable implications at the very least for how London is managed.