The world’s office leasing fundamentals will be significantly impacted by the Covid-19 recession and the work-from-home (WFH) trend, but they will ultimately begin to improve in 2022 and will fully recover 2-3 years later, according to new data from Cushman & Wakefield.
However the report details a bumpy ride for Europe over the next 24 months, with the loss of 1.2 million jobs forecast for office workers by the end of 2020 encountering higher office completions next year, creating a negative impact on demand.
The Global Office Impact Study examines both the aggregate cyclical and structural impacts on the office sector’s fundamentals to present three predictive scenarios across five key regions.
Europe's bumpy ride
The baseline scenario for European office employment is for a loss of 1.2 million jobs in 2020, more than the 0.9 million jobs lost in 2008-10 due to the global financial crisis (GFC).
Accounting for this job impact alone, demand in the European office sector is forecast to contract by 39.4 million ft2 (or 1.1% of inventory) over the next two years, with most of that (-29.1 million ft2) occurring in 2021.
Cyclical stress on coworking/flex operators results in another -5.8 million ft2 of negative absorption over the coming years, assuming only 10% of the coworking/flex footprint comes back to the market, the research predicts.
On the supply side, European office completions are set to rise in 2020-21, supported by high pre-leasing activity over recent years.
A simultaneous reduction in demand and an increase in new supply should push up vacancy rates from an historic low of 5.9% in 2019 Q4 to a peak of 10.6% by 2022 Q1, according to the report - a 470 basis points (bps) increase that significantly exceeds the 270 bps rise recorded post-GFC.
In 2022, office demand is again likely to turn positive, driven by an improving labour market. Office work employment is expected to reach its pre-crisis level by the third quarter of 2022, the report suggests, which represents a 10-quarter recovery period consistent with the GFC.
Office demand should peak in Europe in 2023, with prime rents returning to their pre-crisis levels by late 2024.
The reduction in office demand from structural WFH factors is greatest by 2023-24 as WFH increases at an accelerating rate in the first half of the 2020s.
The study assumes that the share of people working permanently from home in the US and Europe increases from around 5-6% pre-Covid-19 to around 10-11% post-Covid-19 and that the share of agile workers increases from 32-36% to just under 50%.
By contrast, these structural impacts are likely to be significantly lower across Asia Pacific and Greater China, where WFH is (and is expected to remain) less common.
Rebecca Rockey, global head of forecasting at Cushman & Wakefield, concluded: 'Even though the impact of work-from-home trends will slow the office market recovery, the overall growth in office-using job sectors along with many other factors – including agglomeration, culture/branding, and productivity – collectively indicate that the office will continue to play an important role in the economy going forward.'
