Originally published May 2023.
Do not write off the office
You may be forgiven for thinking that some people have forgotten how to wear trousers. Headline after headline for the past three years declaring that working life is now just one long Teams call, dressed only from the waist up, in box rooms, on kitchen tables or wherever else we can find to perch our laptops – but certainly not in the office. This is of course nonsense, but no one can deny that work is changing, with profound implications for global office markets.
Almost empty throughout the pandemic, many offices came back to life in 2022. While considerably less busy than they were, occupancy rates trended higher throughout the year as we all came back to the office for at least part of the week. In time, will things return to the way they were? This looks unlikely, but it’s important that we don’t view global offices through a single lens. There are today massive differences between assets, cities and regions. Some parts of the market elicit extreme caution, while others present an abundance of opportunities.
Office take-up gained momentum in Europe and APAC
Despite ongoing concerns over hybrid, demand for office space was surprisingly robust in 2022. Take-up rose across Europe and APAC, pushing net absorption firmly into positive territory. This was not the case in the US, with net absorption expected to have been negative for the third year in a row. Despite a recovery in leasing activity in the US, record lease expiries and a reduction in renewals resulted in occupiers shrinking their overall footprint, often in exchange for higher-quality space, according to JLL.
This shift towards higher-quality space was a common feature across many global office markets. Changing occupier needs, regulatory requirements, talent retention and net zero goals are leading a shift to quality. Last year – according to Costar – over 80% of all large (more than 25,000 square feet) leasing deals in New York were made in grade A buildings. This becomes 90% in the City of London, according to Savills.
