What commuting trends mean for the CBD and investors

Think Central Business District (CBD) and you probably picture an area of tightly packed, multi-storey office blocks with a few lunch outlets and little else. But, from recent research carried out by CBRE Investment Management (CBRE IM) and PLACEMAKE.IO, the image of the office-dominated CBD is disappearing in the rear-view mirror.

Analysis of London’s passenger traffic data from TfL combined with PLACEMAKE.IO’s office stock density index has revealed that commuter numbers at tube stations in areas with a more balanced mix of offices, retail and leisure facilities have returned to pre-pandemic levels. In contrast, in areas with a higher density of offices, such as the City of London, commuter numbers are still below pre-pandemic levels.

What could be driving this trend? Hybrid working is now becoming the dominant pattern of work. Our research confirms this. It shows that five-day working week traffic is still down on pre-pandemic levels at most stations, with passenger numbers the highest on Tuesday, Wednesday and Thursday, making what has been termed the mid-workweek the new normal. This is most apparent in the City of London, where every station recorded higher mid-workweek performance than overall workweek traffic.

However, in the case of full working week traffic levels one notable outlier is Tottenham Court Road station, which saw passenger traffic levels 35% higher than the first quarter 2020 – the study’s base-line pre-pandemic figure.

All this suggests when workers do go back to the office, they prefer areas where they have the option to enjoy a decent lunch, indulge in retail therapy and socialise through after-work drinks with colleagues and friends. In areas with very high office densities, office use crowds out almost everything else, from experiential leisure to unique food offerings and independent retailers, leading to dull, soulless areas that are less appealing to today’s hybrid worker.

The implications to investors are clear. Investors need to be aware that occupiers, which are in a battle to attract and retain talent, want offices not only with excellent amenities but that are close to attractive retail and leisure destinations. This could be created within a mixed-use scheme or through an office development located in a vibrant community that already has such facilities. A similar case can be presented for the location of serviced offices/workspaces, which will need to appeal to the individuals directly using them.

However, it is far more difficult to create an authentic and characterful destination from scratch than it is to develop offices in areas that already have a buzz.

There are already signs of a move away from the traditional office-dominated CBD. In a recent analysis of London’s office submarkets, Paddington, Westminster and Southbank West had vacancy rates as low as 3% compared with rates of more than 10% for Docklands and the City of London, according to CoStar. The West End, although London’s most expensive office area, continued to lead the market due to high demand and lack of supply.

Future office development opportunities in London are likely to lie in areas surrounding the City of London CBD, such as Hackney, as well as transport hubs and suburbs with few modern offices. Areas offering redundant old office, industrial or retail buildings ripe for refurbishment have an advantage in terms of simplified planning offered through change of use permitted development rights. Of course, these areas will also need to provide a lively atmosphere right on the development’s doorstep.

David Inskip is senior director, EMEA strategy and research, at CBRE Investment Management