23037_PDS Office Fit-out Guide_v4

EMEA OFFICE FIT OUT COST GUIDE 2023

Over the past 12 months the primary issue has been surging inflation resulting from significant supply-demand imbalances resulting from stressed supply chains, tight labour markets and not least the Russia-Ukraine conflict which has now entered its second year. OFFICE MARKET REVIEW & OUTLOOK

KEY HIGHLIGHTS

Indeed, these pressures are arguably being felt more acutely in Europe than in any other region, and it still remains uncomfortably high. Data from the start of 2023 highlights that core inflation (especially services) is not under control, resulting in further interest hikes (Figure 1).

Real GDP growth for both the euro area and the UK to improve in the latter half of 2023 • Annual growth of 0.4% for the euro area and -0.3% for the UK.

FIGURE 1:

INFLATION (YOY % CHANGE) VS INTEREST RATE (%)

Labour market to remain comparatively tight, though will soften as the regional economy slows

Euro Area HICP

UK CPI

BoE Base Rate (RHS)

ECB Refi Rate (RHS)

YoY % chg

% 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

12

High-quality offices expected to outperform across all key leasing metrics.

10

8

6

4

Occupiers may need to factor in higher all-in costs to accommodate technology and sustainability improvements, though payback periods (especially for sustainability efficiencies) have shortened considerably.

2

0

-2

Jun-21

Dec-19

Dec-21

Jun-22

Jun-23

Jun-25

Jun-24

Jun-20

Dec-22

Dec-23

Dec-25

Dec-24

Dec-20

Source: Cushman & Wakefield Research, Eurostat, Moody’s Analytics *Forecasts refer to C&W Baseline Scenario – January 2023

Turning to the office market, regional office demand sat at 3.5 million square metres in 2022 with vacancy flat over the year at 8%. There are encouraging signs that more occupiers are making decisions on hybrid working. This not only impacts aggregate office demand but also demand for specific office types, with the expectation that high-quality offices (with high amenities and desirable locations) will remain the primary focus. Fundamentals, like leasing and rental growth, in such high-quality offices are expected to outperform the broader market, as occupiers focus on employee well-being and experience, and as they focus on ESG (Environmental, Social and Governance) credentials.

Inevitably these factors will weigh on economic growth with a weak outlook for the year ahead. Real GDP growth in 2023 for the euro area and the UK is forecast at 0.4% and -0.3% respectively. Notwithstanding, downside risks to the growth outlook for both the UK and the euro area remain. A robust labour market is one of the key factors that will be supportive of the regional economy. However, labour markets tend to be a lagging indicator, therefore we do expect the impact of sluggish economic growth to begin showing in labour markets in H2 2023 and with that, for unemployment to rise over the next 12-months.

4

CELLNEX FIT OUT, POLAND, DELIVERED BY CUSHMAN & WAKEFIELD PDS 5

Cushman & Wakefield