KEY OBSERVATIONS
8 April
For our latest office observations from markets across EMEA please click through to our latest findings.
Market Context
Flexible Workspace
Occupiers By Sector
Market Outlook
- The office market started 2020 in a very strong position for landlords. A significant number of EMEA locations, 59% in total, were reporting landlord friendly market conditions as of end Q4 19, up from 52% a year earlier. This is reflected in the very low vacancy rates and limited pipelines, minimising forward-looking availability levels. Pre-COVID-19, the expectation for the year ahead was that this position would be maintained, supporting rental growth/stability, although some landlord-friendly markets may switch to a neutral position as demand-side conditions - economic and employment growth - contract.
EMEA Flexible Workspace: 2020 Update
- The ability for firms to manage through a period of flexible working is coming under a major stress test, in what is the world’s biggest ever remote working experiment. The rapid adoption of technology in the last decade and the use of remote devices and video conferencing should enable the majority of companies to function effectively, at least short-term.
- Yet the need to minimise social distancing and contain any spread of infection is likely to embed a constant need for flexible working in future, and spur changes in how whole business teams are set up. Co-location and decentralised location planning may well move up the corporate agenda in future, allowing larger companies to better manage business disruption in future, rather than face the closure of one centralised office for all staff.
- The adoption of independently operated, flexible workspace is also going to face its toughest market test. The greatest pressure must be on operators reliant on local SMEs, on short-term contracts to pay the rent. The gig economy is going to be under extreme pressure in the next quarter at least, and many smaller independent operators may not have the cash-buffers to honour their master lease or mortgage commitments. Working amongst a bunch of relative strangers is a very exposed business model under current circumstances.
- That said, flexible workspace operators with larger corporate clients, and who have robust sanitisation/crisis management and communication operations in place may even benefit – from both short-demand from specific project teams, and as mid-long term demand grows on the back of the need to decentralise some corporate operations.
- Businesses most exposed to a short-term economic shock will undoubtedly include airlines, tour/holiday operators, events, music, sports and art based entertainment companies.
- If we consider the major office-based occupier groupings that drive city economies, the short-mid term hit from the current downturn is most likely in the finance, banking and insurance sectors, and potentially the real estate sector – both of which are dependent on transactional activity to maintain revenues and output. Cities heavily exposed to these sectors (in yellow, below) may see office demand come under negative pressure.
- Conversely, sectors highlighted in green include the scientific and professional services which may see demand for their services expand. The public services/administration and back-office support services should remain stable throughout, and again we can see difference by market.
- Even under some significant market stress-testing, the vast majority of EMEA office markets look set to maintain low vacancy rates. Despite a drop-off in absorption resulting from economic/employment contraction, office pipeline activity is also stalling which will serve to maintain a supply-demand balance. Those markets showing the biggest outward movement from vacancy rates posted at end 2019, tend to be locations that had already seen vacancy move out in 2019, as the supply-side expanded via new completions. The exposure of markets to certain business sectors will further impact vacancy levels, but on the whole the pressure on rents mid-term looks limited.
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DISCLAIMER
The analysis and finding reported on this microsite is based primarily on Colliers International data, which may be helpful in anticipating trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation to, the forecasts, figures or conclusions contained in this report and they must not be relied on for investment or any other purposes. The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a “Global Pandemic” on the 11th March 2020, has impacted market activity in many sectors, creating an unprecedented set of circumstances on which to base a judgement. This report does not constitute and must not be treated as investment or valuation advice or an offer to buy or sell property. Given the unknown future impact that COVID-19 might have on real estate market supply, demand and pricing variables, we recommend that you recognise that our research and analysis is far more prone to market uncertainty, despite our endeavours to maintain our robust and objective reporting.
