The End of the Big City Office?

Outside view, London office building in the evening.

Decentralizing the Trading Floor.

Financial trading has seen a trend of ever-strengthening regulation that was galvanized during the fall-out from the 2008-9 financial crisis. Although some of this has been rolled back under the current US administration, the global trend is towards ever greater control and scrutiny. As discussed in recent posts, compliance has come under pressure during the COVID-19 crisis; traders are not only respecting physical distancing measures on the trading floor but are also working in disaster recovery locations and from home where monitoring and recording are harder to perform.

One of the features of the post Credit Crunch legislation, notably in the UK, was the ring-fencing of retail banking deposits from the investment wings of the largest Financial Services institutions. The same investment divisions are now looking, not at the deposits, but at retail banking real estate as a potential way to provide a more controlled workspace for trading staff.

This is part of a larger conversation about the future of work. Rather than being a stop-gap, some changes may prove to be more fundamental and permanent; could the big city office be consigned to history? According to companies like Barclays, the large, heavily populated office could soon be closing for business.

“There will be a long-term adjustment to our location strategy…the notion of putting 7,000 people in the building may be a thing of the past.”
Jes Staley, CEO Barclays, 29th April, 2020

The Future of Work

When we consider the acute and long-term trends, the argument for financial services moving away from traditional city office space takes on momentum. Remote working has been an increasing trend in recent years. For most people it was not done every day and in some industries it was never done – until a few weeks ago. Retail and investment banking are continuing to operate in a remote working reality during lockdown. The ability to do so can bring flexibility and save costs on the retail banking side and it has been found that 68% of UK workers feel they are more productive when working remotely. Space freed up by remote retail banking staff presents an opportunity for investment staff to work more locally by creating controlled environments with standardized infrastructure for core activity, connectivity, security and compliance. Retail banking branches have been on the decline since the advent of Internet banking. Fintech phone banking apps have accelerated the trend in recent years and they have enjoyed a spike in uptake since lockdown. The re-purposing of retail spaces with a more wholesale banking focus may allow for a best of all worlds solution that can still serve the public on a limited basis.

The Back to Work Transition

People have been living without the commute for several weeks now. Many thrive on the buzz of working in the city but it is unlikely that they are missing the early starts and uncomfortable journeys on packed trains, buses and metro lines. Busy public transport is always a transmission zone for the new season’s viruses. The continued presence of COVID-19 and the realization that this may not be the last coronavirus outbreak are likely to affect people’s appetite for a daily commute and crowded spaces in general. If we assume that commuters spend 5-10% of their salaries on daily travel, then banks have an opportunity to move roles out of large offices and trade-off pay cuts against a reduction in commuting. Dr Alan Redman, a Work and Organizational Psychologist from UK consultancy Criterion, recognizes the situation:

“It seems likely that both businesses and the people they employ will be reluctant to let go of these benefits once restrictions are relaxed over time. Organisations have perhaps had to learn to trust workers to remain productive while working from home in a way that many traditional employers have been slow to do in the past, despite advances in technology making remote working straightforward for many jobs.”

Technology is a strategic factor here. Over the past 20 years events like 9-11, SARS, Hurricane Sandy and even the New York Brownout may have brought the use of large city offices into question. However, for mission-critical activity in key industries, the technology didn’t exist to make alternatives viable. In 2020, with virtualized infrastructure, reduced reliance on desktop hardware, widespread super-fast broadband and 5G mobile coming on stream, remote working, including more distributed models within existing real-estate, becomes a possibility. JP Reis has talked with senior banking managers who are already looking at retail banking real estate as a way to apply governance to trading activity without bringing everyone back to the main floors.

This potential scenario chimes with other trends towards work-life balance, air pollution reduction, wider environmentalism, and a decreased focus on major cities in the distribution of economic activity. It may even lead to an easing of the affordable urban housing crises that many cities face. In the medium term, such options are likely to be obligatory as governments look to stagger work hours, cut down on hot-desking, promote flexible working, reduce the sharing of equipment and lower occupancy density to maintain physical distancing. Performance during this transitional phase will likely dictate which of the new working practices stays for good.

The Psychology of Remote Working

While factors may appear to be converging, it is important not to oversimplify, people tend to congregate for more than mere infrastructure. The scenario we have described would see trading desks working together in controlled spaces but it relies on large numbers of employees working remotely and this could have repercussions. As Dr Redman explains:

“Social interactions and relationships are a key source of motivation for many people, valued more highly than the content of the job itself. Paradoxically, work-life balance and well-being can be adversely affected when home working results in an increase in ‘always on’ expectations and loss of connection with others. While saving costs, businesses risk losing employee engagement and opportunities for creativity, innovation, and knowledge sharing afforded by chance encounters and conservations that are a feature of the workplace…employers are effectively requisitioning the worker’s home as a means of production. This has implications for the strength of the psychological contract between the organisation and its workers”

While speculating on the future, this insight reflects the challenges that companies, employees and managers are experiencing right now in lockdown. Governance requirements mean that trading operations will almost certainly return to some semblance of what existed before, but the most successful organizations will be those that innovate most effectively to support all employees in their new working practices.

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End of the Large City Office

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