Overall demand for European offices is set to fall slightly over the next five years as more companies look to exit older buildings in favour of those that meet their corporate ESG targets and more flexible working strategies, says Savills.
The adviser’s latest research found office take-up volumes in Europe recovered last year, as pent-up occupier demand resulted in higher deal flow in the final quarter. Take-up amounted to 4.9 million m2 in H2 2021, above the five-year H2 average.
Looking ahead, newly developed, more sustainable office stock is likely to see stronger occupier demand than older buildings, which in turn may be sought after by value-add investors which can asset-manage them to improve their ESG credentials.
James Burke, director, Savills Regional Investment Advisory EMEA, said: ‘With more and more investors and tenants having to meet strict ESG targets, we are starting to see a widening gap in pricing for new core offices versus outdated offices in less easily accessible locations. As a result, we anticipate that value add investors, led in many instances by private equity houses, seeking to asset manage office stock to improve ESG ratings will grow as a trend over the next couple of years.’
Burke noted that the average yield spread between BREEAM-certified and all offices has widened by 44 basis points over the last 12 months as obsolescence risk becomes more apparent.
As well as focusing on ESG, many occupiers are also working out whether they will adopt a more agile working approach to reduce the number of desks in their workspaces and increase desk-sharing.
Savills’ analysis of occupiers across Spain indicates that 60% of occupiers are adopting 40% flexibility in their workplaces. Tenants which reduce the number of workstations by adopting a 60% flexibility ratio may reduce their overall demand. However at the same time, some of these companies are doubling their open-plan working areas.
Mike Barnes, associate director, Savills European Research, commented: ‘Overall, we anticipate the net effect of desk-sharing to outweigh the increased demand for workspace per worker over the next five years, implying an average 10% fall in European office demand by 2026.’
He added: ‘German top 7 and Nordics cities remain among the more resilient due to higher levels of pre-pandemic working, early signs of a faster return to office occupancy, stronger office-based employment growth and higher workplace density regulation.’
