The unexpected crisis seen at the start of 2020 became all-encompassing and then uncontrollable over the course of the year. The situation now seems to be unending and, looking at health indicators, there is no hint of a return to normal over the short term. Countries affected by the epidemic may be counting on vaccinations to eradicate the virus but office real estate has been hit hard by the crisis.
Take-up figures for 2020 were among the lowest on record (1.3 milion sq m) with a -45% year-on-year decrease. Despite an uptick in transactions over Q4 following struggling activity over Q2 and Q3, this situation reflects the abrupt halt in transactions as activity struggles to recover with businesses facing uncertainty and re-examining their use of office space in light of what they have been through over the past year.
The drastic reduction in translations resulted in a sharp rise in immediate supply which stood at 3.68 milion sq m by the end of 2020. New supply is struggling to find tenants, with the exception of transactions that had already been initiated before the arrival of Covid-19. Second-hand space is now having to deal with the broader range of options open to decision makers who often prefer the flexibility and appeal of alternative options, such as subletting or all-inclusive office space at coworking or business centres.
Supply under construction will add to these already substantial volumes and this should result in some value corrections in 2021, with a stronger influence in those areas in over-supply. Longer term, office supply should see a period of transition driven by hybrid modes of working and an increasing need to manage real estate costs.
Download our economic note to find out more!