It's been just a few days since 2020 ended and we are sure that many of you are looking forward to 2021 and making a fresh start.
To be prepared for what the new year has in store for us, we decided to share with you some office market insights.
Stock vs Vacancy
With a modern office stock of close to 3 mn sqm as of December 2020, up to 300,000 sqm of office space are expected to be added to the stock in 2021 as these developments cannot be postponed any further.
Assuming the completion of all these projects, the vacancy rate is expected to increase from 11.25% as of mid-2020 to at least 16% in 2021 on the primary markets.
As we sail through 2021, there are contracts of around 300,000 sqm GLA getting to term during the entire year. Most of these companies did not take any position yet as they have been waiting for more clarity, thus we expect to see them more active during 2021. On one hand, this might generate additional vacant spaces (assuming that any lease reaching maturity will downsize by 20% on average to account for the permanent integration of remote work policies) but, at the same time, will generate a higher activity on the market compared to 2020 as most of the leases will run stay vs go processes in order to take a well–informed decision for the next contractual mandate.
Lease vs sub-lease
The pandemics favored the development of a secondary market built up by the extra spaces leased by large corporations. Most of these companies leased speculatively some additional spaces in order to match the expected increase in the number of employees. There are already more than 60,000 sqm of office space available on the market for sub-lease (this figure is based on our own knowledge and estimates, and it is more likely to be an underestimation rather than an overestimation).
Work from the office vs Work from home
More than 50% of the companies in office buildings had less than 10% of their employees in the office space at the end of September 2020 and they are expecting a possible return to the office (with at least 50% of the staff) around mid-2021.
After approximately 8 months of almost exclusively working from home, there is a general alignment regarding the new way of working, with an average of 2-3 days per week outside of the office. This is expected to facilitate the increase in the supply on the secondary market throughout 2021 as large corporations will take a decision about the working policy and, consequently, the excess spaces. According to our estimations, we expect at least a doubling of the current offer, with more than 120,000 sqm for sub-lease. Our surveys also suggested that bigger companies are more likely to downsize their current occupied space as opposed to smaller ones, skewing the impact on overall occupancy.
Nonetheless, all the above create the premises for a tenant-oriented market for the next couple of years. While it might be difficult for landlords to be highly flexible with regards to headline rents, incentives are bound to become more attractive. With more rent-free months and less of the standard 1 month per year and higher fit-out budgets (both for new and existing tenants), for most companies it could be a good time to lock in some more favorable terms for a longer period of time.
On a positive note, the secondary market also favored the development of a blue ocean for the office market. In most cases, the spaces available for sub-lease are targeted by companies that use to be hosted in Class B, unconventional or owned spaces. This situation created the premises for these companies to target better quality office spaces, with most of these sub-lease alternatives offering already fit partitions and furniture, with the advantage of not adding a lot of extra costs. There is some hope that part of these new sublease tenants will remain in that space in the longer run.
The office will never be the same again. But who says it can’t be better?
A lot has been written about the new way of working that will be organized as a mix of work outside the office (the individual work being prioritized) and work from the office (where companies will travel for collaborative needs). 2021 will be dedicated to strategies: with the vaccine on the way and some projections regarding a better control of the number of cases, we foresee the premises for a possible return in the office during 2021.
Thus, we estimate a busy 2021 with a lot of effort from companies on:
- Determining the new way of working, with all that this entails. Finding the right balance of collaborative and individual workspaces within the office will be key in 2021. Design experts predict that more companies will adopt what is known as “hoteling.” That means employees no longer have assigned seating but locate where there’s space available for the type of tasks they’re working on. Some areas will be earmarked for quiet work while others will be designated for group discussions, for example.
- The changes to be done in the office spaces in order to bring the employees back to the office when the time comes. They’ll be expecting much more than a desk – they’ll expect a workplace destination, an exceptional experience that delivers more than their home office could ever offer.
- Evaluating the work-life balance. In the wake of the global pandemic companies will focus on strategies to keep employees safe, engaged, and productive at work.
- Identifying the best ways for using technology to enhance, not replace, human interactions. How to sustain performance when working virtually.
- Higher attention to mentorship: focusing on opportunities to support formal and informal mentorship, both virtually and in-person, and how to stay connected as a team.
Acting with huge lingering uncertainties meant that 2020 was a difficult year to begin with. However, we believe that 2021 will offer a starkly different reality. Fortune favors the bold and at a time of great changes, boldness will be that much more present.