Survey findings published today by real estate firm, Colliers International, suggest that despite the tough economic climate office tenants are concerned about how their physical space impacts on their business’ success, whether through the ability to impress clients or attract and retain staff.  

However, the primary aim for tenants is to reduce the cost of their office space, resulting in a challenging balancing act between delivering savings while bringing in measures that support business growth. Companies are looking at ways of making their working practices more efficient and thinking of new ways to design their office space. 

Respondents of the Office Occupier Survey 2012 were mainly larger firms employing at least 1,000 employees across Europe. The majority are split between four key sectors: Banking, Finance and Insurance; IT and Telecommunication; Manufacturing, Transport and Utilities; and Professional Services. 

Against a backdrop of continuing economic uncertainty, the findings of our survey are sobering yet encouraging. After staff costs, a business’ office rental costs are often the second highest on the balance sheet and it’s clear that companies are looking at a range of options to help them become more efficient. 

Over 40 per cent of the companies interviewed stated they have reduced their space requirements over the past five years as over 80 per cent of respondents regarded more attention to cost savings as their primary focus. This pattern was considerably noticed in the Greek market, where the recession had a huge impact on the space requirements of the users as a result of their efforts to reduce annual real estate spend.  Thus, the driver of relocations was mainly focus on ‘downsizing’ occupancy in newly leased premises in order to reduce operation costs for occupiers. 

However, despite cost concerns dominating any other kind of consideration when choosing office premises, the survey suggests companies do not underestimate the appeal of new work space to their staff. Nearly 80 per cent of the respondents placed significant emphasis on the impact their buildings had on staff recruitment and retention. 

Key findings from the Office Occupier Survey 2012 include: 

  • Saving on tenancy costs: Cost containment remains one of the main considerations of tenant real estate decisions, including building choice. As a result, many companies, and specifically Corporate Real Estate teams, continue to be faced with the hard task of delivering new cost savings while at the same time implementing measures that support overall business growth.
  • Rethinking workspace design: The vast majority of the companies (84 per cent) that have undertaken a major relocation/lease renewal in the last two years, have taken this opportunity to rethink their office design and undertake changes in work practices, including desk sharing and hot desking. As companies seek to further optimise their real estate portfolio, this trend is likely to continue in the future.
  • Building impact on staff attraction and retention: A majority of the companies interviewed believe that their building choice has a substantial impact on their staff and their desire to work for the company. Accessibility and amenities are believed to be the two most important features a building must have to keep and attract talent. 
  • Counting the cost of going green: When asked about occupying “green buildings”, respondents named Corporate Social Responsibility (CSR) and an improved ability to attract and retain staff as the top two factors when deciding to go green. However, for the time being, less than half of businesses say they would pay more for a green building. 
  • Economic problems won’t go away: The economic recovery in most part of Europe is set to remain patchy also next year, as the effects of austerity measures and uncertainty continue to curb spending and hamper corporate investment.  Latest forecasts for the Eurozone point to GDP growth remaining essentially flat in 2013.  
  • It’s a tenant’s market: Businesses will continue to have the upper hand as the economic conditions and weak demand will keep the pressure firmly on landlords as they compete for a still relatively reduced group of potential letting candidates. This means significant opportunities will still be available on the market for tenants.  
  • Renegotiation vs. Relocation: Office tenants with upcoming lease expiries/breaks will continue to be tempted by lease renegotiation/renewal as an alternative to relocation, as they seek to avoid incurring additional costs and take advantage of their stronger negotiating position to secure better terms. This trend was evident in the Athenian market, where end users were demanding incentives in the form of rent free periods and significant reductions of the rental rates as well as fit out contributions and leasehold improvements in order to remain in their premises by renewing their leases. Nearly in all cases, landlords, where willing to accept these terms and retain their tenants in order to avoid their properties being vacant.
  • Not enough of the right space: In many cases, the outcome of tenant relocation plans might be equally influenced by supply–related considerations. In many cities, the severe slowdown in construction activity is limiting the number of relocation options available, particularly in the most central areas including London, Munich and Moscow. 

Looking to the future, Dr Walter Boettcher, Director of Research and Forecasting at Colliers International concludes: “The survey results are wholly consistent with an economy lacking confidence, that is, businesses are still more focused on cost cutting than on investment in expansion.  Lack of confidence is the main impediment to business investment and recovery.  

“While the UK ‘Autumn Statement’ has restored certainty about the direction of UK Government policy, uncertainty is growing with respect to the Eurozone banking union proposals and especially the looming US Fiscal Cliff posing serious downside risks worldwide. These worries will impact business confidence at least through mid-2013, suggesting that increased confidence and a sustainable recovery is not in the cards until late 2013 or, more likely, 2014.  

“In the meantime, steady (if modest) demand and the lack of new office development EMEA-wide have led to growing shortages of Grade A space; vacancy rates and rents are therefore relatively stable and the outlook for EMEA office markets, despite a weakening economic trajectory over 2013, remains generally stable.”

In Greece especially, net effective rents have seen a drop of up to 40% on secondary properties, thus increasing the difference between Class A office space and lower quality space. This has resulted in vacancy rates remaining stable for prime office locations as demand tends to be concentrated in these areas, which should eventually also create stable prime rents.