Colliers: Demand for modern office spaces returns to pre-pandemic levels
The demand for modern office spaces continued its recovery, with the second quarter of 2022 the best since Q4 2019, according to Colliers experts.
New demand reached 73,500 square meters in the first half of this year, 94% higher than last year's number. Additionally, modern office spaces saw a demand of 130,000 sqm, 16% higher than last year's first semester.
Another noteworthy market performance is how the vacancy rate dropped from 16.50% to 15.25% by mid-2022. On average, the market price for newer buildings in a good location drops to 10% while occupancy keeps on increasing in many large markets.
"Taken together with a somewhat light calendar of new buildings to be delivered in the next few years, the office scene is starting to feel landlord driven in certain submarkets," says Victor Coșconel, the head of Leasing | Office & Industrial Agencies at Colliers.
He explains that some big tenants are still trying to sublease part of their offices as they are adjusting their strategy, while the hybrid work transformation is slowly becoming the latest trend in the market.
"[...] Also, the divergence between total demand and new demand, where one is expanding nicely and the other is growing exponentially, is probably one of the more interesting trends of the recent period and it shows that the number of companies reducing their office presence amid hybrid work was overstated for 2021-2022. However, the hybrid work transformation is happening as we speak, hence some companies might soon take the decisions they’ve kept postponing, so there is still some room for negative surprises in terms of occupancy. Some caution is also warranted given the current context of heightened economic uncertainty globally," he explained.
At the same time, upside pressures on rents are emerging and headline rents for new office buildings yet to be delivered, during the next couple of years, are climbing steadily. Meanwhile, rents for older, albeit good office buildings, remain flat when the leasing deal is up for renewal, the Colliers consultants note.
"Based solely on our pipeline of leasing deals and knowledge of the market, it looks like office leasing activity could return to pre-pandemic peak levels within two years if the trend holds and no radical decisions will be taken by the largest tenants, a few years sooner than we would have normally anticipated. Taken together with a less than robust deliveries calendar, of around 120,000 square meters of new offices expected per year between 2022 and 2024, we would expect a generalization of upside pressures on rents for good buildings in the following quarters. Inflation is also an argument for higher rents. Overall, based on this strong demand, the vacancy could drop towards single-digit territory within two years from over 16% at the end of 2021. Vacancy for good offices is likely in the neutral market territory, no longer a tenants' one," he added.
The most notable additions in the first half of the year were the River Developments’ Oslo and London buildings part of the Sema Parc project (31,500 sqm), Forte Partners’ Tandem (21,000 sqm) and the first building in Atenor’s @Expo project (21,000 sqm). For the second half of the year, the Colliers consultants expect a similar figure of new stock.