How has Covid-19 permanently changed the UK business landscape?

Covid-19 has triggered a shift in the way people work, interact, and shop. As businesses in some sectors prepare for employees to spend two to three days a week working from home on a permanent basis, existing office space capacity could potentially increase by as much as 40%, according to a new KPMG report, New working patterns and the transformation of UK business landscape.

The increased availability of office space in major business hubs is expected to attract businesses from smaller areas to fill up the vacant space, with cities like Manchester, Bristol, Glasgow, Leeds and Birmingham set to see employment rise by 5-10% as a result.

Areas in central London are also expected to benefit, as well as smaller towns and cities with a large proportion of the workforce working partially from home. Meanwhile, less dense business areas could see a decline in employment and may need to be transformed into more residential, leisure, retail and other uses.

As the business landscape consolidates, KPMG analysis also found the change could boost overall UK labour productivity by 0.5%, thanks to businesses being able to tap into a larger pool of workers, suppliers, and clients.

Yael Selfin, Chief Economist at KPMG UK, commented on the report: “As we emerge from the pandemic, businesses need to adapt to the new environment they will be facing. Some may choose to relocate to larger business hubs to boost profitability, while others in less central areas could see their local customer base profile change.

“While the overall impact on the UK economy is expected to be positive, the changes ahead could prove challenging for those businesses already saddled by the pandemic.”

Ian Brokenshire, senior partner for KPMG in the South West, said: “So much of the South West business community is dependent on people visiting towns and cities, so finding new hybrid approaches to working that drive footfall is especially important for the region. It’s encouraging to see how South West firms are using office space creatively to boost their productively as they adapt their operating models to reflect the new reality. Bristol businesses, in particular, were highlighted as leading the charge in this area. We’re already seeing the positive ripple effect of higher footfall on the city’s restaurants, cafés and sporting facilities, with lots for other towns and cities to learn from – long may it continue.”

Areas affected by potential changes to productivity

Top 10			Bottom 10
Town/city	Productivity change, %		Town/city	Productivity change, %
Hemel Hempstead	1.26		Harlow	-0.19
Manchester	0.68		Bedford	-0.22
Salford	0.61		Hartlepool	-0.25
London	0.58		Gillingham	-0.26
Warrington	0.56		Shrewsbury	-0.30
Leeds	0.53		Hastings	-0.34
Watford	0.53		Blackpool	-0.52
Bristol	0.50		Eastbourne	-0.54
Norwich	0.43		Southend-on-Sea	-0.68
Birmingham	0.38		Southport	-0.73

The report examines how local high streets in residential towns and neighbourhoods are expected to reap the benefits of greater homeworking through increased demand by residents during the week. But the impact on high streets across the UK is unlikely to be uniform. Some places may be hit relatively hard by the loss of office workers due to their proximity to a larger business hub, which may be compounded by the loss of commuter footfall among remaining employees due to the prevalence of working from home.

Yael Selfin added: “As people spend more time working from home and less time in the office, we could see a revival of the local high street.

“They will need to transform into places of purpose to meet demand for community-based services, hospitality, culture, as well as retail. High street offering in smaller towns and cities may need to become more focused on residents’ needs and less focused on businesses and commuters.

“This transformation will require local government, residents and businesses to work together to map their future shape and make concrete plans to support and enable the necessary changes to make the most of the new post-Covid business reality.”