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Real Estate

Office markets in Europe show signs of recovery

New ways of working and environmental concerns have changed the office market in the UK and in France

5 MIN READ June 15, 2022

The office market has signalled a recovery now that the worst of the pandemic seems to be in the past. However, the changes that have occurred in people's lifestyle, including consumer behaviour, and how they think about work appear to be definite. 

Although there are many discussions about what work life will look like from now on, the one thing that seems to be certain is that it won’t go back to pre pandemic ways. Some companies have adopted remote work indefinitely, as others have chosen the hybrid format. 

As we’ve watched Elon Musk summon Tesla employees to go back to the office full time, trends researchers everywhere can’t bet on it sticking and there are many reasons for that, climate change concerns being on the top of the list. However, it’s safe to say that these new approaches to models of work will be tested and different work spaces will be created. So it’s not a matter of seizing to exist, but how will they exist from now on.

From a macroeconomic point of view, new emerging Covid variants, the rising energy prices and the economic consequences of the war in Ukraine are some of the unknowns that investors and occupiers are forced to deal with.

The time spent on long commutes, the money wasted and the pollution caused by it are only a few of the negative aspects of going back to the office on a daily basis for employees across the board. 

To remedy that, companies are being required to adjust their formats by offering the hybrid option, co-working spaces closer to home, and showcase ESG initiatives to attract and retain talent, such as airy offices and buildings with green credentials, including energy efficiency. But even with these new demands from occupiers, office market numbers have increased substantially from last year.

French Office Market

In France, as businesses cautiously emerge from the crisis, new formats of work and work spaces have surfaced to appeal to both investors and occupiers, such as collaborative spaces where employees meet a few times a week to exchange ideas and to integrate with their teams started to make more sense. 

As a consequence of the growth in job openings, demand for office space in the Greater Paris Region has taken an upturn since 2021, and take-up just passed 500,000 sq m in Q1 2022, with a stable vacancy rate of 7.4%. On the flip side, foreign investment in the first quarter was lower than last year, with the British representing 9% of the total volume, followed by international funds and Swiss investors (4%). 

On offices as an asset class, Grégoire Deramecourt, Managing Director of Colliers Global Investors, believes “offices are an asset class that has its place in a good portfolio allocation. The only difference is that today, we can no longer invest only in office assets. We need to spread the risk over other asset classes such as residential, logistics and retail.”

Christophe Burckart, General Manager of the subsidiary of the IWG Group, that operates brands in the field of co-working and flexible work spaces, has recently mediated a session at France GRI where he shared a few issues concerning the office market.

The first one being “the integration of the telework policy in the real estate strategy and especially how to manage the flows and the peaks of employees who come in at different times of the week”, followed by “the need for flexibility”. Burckart goes on to explain that companies need to “provide work spaces for the employees, in suburban areas, in tertiary cities”. 

From an investor’s perspective, he believes they “now understand the underlying trend with the need for flexibility and services within the building, something much more hybrid” and points out the need for flexibility in leasing formulas as well.

Marché des bureaux en France

UK Office Market

The UK office market has accompanied the trend in France and demand for office space has grown significantly. Investor demand rose from 5% at the end of 2021 to 23% in the first quarter of 2022. As to which assets are more attractive for occupiers, Grade A properties have 93% of take-up, so far, and BREEAM rated buildings, 60% of take-up, which is more than the 40% average in the past.
 
David Pralong, Managing Partner at Maya Capital, who will moderate a Club Meeting to talk about the state of the sector in the UK and, shared a preview of his thoughts on the subject as he stated that "there is going to be increasing polarisation in the office sector between prime assets, being well-located Grade A with ESG focus, and all other stock which is likely to be severely impacted by the emergence of a work from home culture”. 
 
According to him, “with the highest office occupancy since the onset of the pandemic still sitting below 30%, occupiers need to provide their employees with office space that is easily accessible and offers state of the art amenities to compete with the benefits of working from home”, and went on to say that “this is closely aligned with the priorities of investors, who, in order to comply with ESG standards, are focused on offices that meet net zero carbon criteria and promote occupier wellbeing.”
 
To continue the debate, on June 30th, the GRI will host two Club Meetings to discuss the perspectives for the office market both in the UK and in France, as well as trends and macroeconomic shifts that have affected the sector for investors, proprietors, developers and occupiers, such as the rise in inflation, interest rates and ESG focus. For more information, please visit the websites.

UK Office Market

Written by Roberta Gomes
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