European Office Sector Outlook 2024

NAVIGATING THE NOW TO SOLVE TOMORROW'S CONUNDRUM Since the pandemic, the European office market has shown resilience with positive net absorption¹ since Q3 2021. Renewals have been more common during this period as businesses have sought to gauge the future of in-office balanced with remote work. Subsequently, we are now witnessing a growing utilisation of flexible office spaces as occupiers opt for a short-term approach while they grapple to gain a more accurate assessment of their space needs. Flexible spaces are more adaptable to accommodate changing size and functionality requirements. Furthermore, while employees have embraced hybrid working, a significant portion of them still tend to come to the office on the same days as their co-workers. Consequently, the office space requirements in some markets have remained consistent, as occupancy during peak weekdays (typically Tuesday through Thursday) remains unchanged. Larger corporates are also including what is now referred to as ‘option space’ as a contingency which allows occupiers flexibility in lease agreements. For instance, 18% of lease contracts of 50,000+ sq ft in Central London² signed between 2020 and H1 2023 incorporated expansion options within the agreement and half were secured in advance.

Nonetheless, for 2023, we anticipate a 16% decrease in take-up across Europe due to prevailing economic challenges and the ongoing refinement of space needs. The propensity to work remotely varies significantly from one city to another, with factors like nature of commute, commute times and cost of living strongly influencing the proportion of employees returning to the office on a full time basis. Furthermore, it's evident that most companies, particularly bigger corporates, are either retaining their office space or reducing it, with only a small portion of the market expanding its physical presence. According to a study by McKinsey & Company³, there were lower levels of office attendance in larger companies (typically above 500 employees) and those in the knowledge economy. It's crucial to acknowledge that our office space was not utilised 100% even before the onset of COVID. The average usage in Europe was 60% of the time. Therefore, it's reasonable to not anticipate a return to 100% usage level. As a result, we don’t expect take-up in Europe to get back to 2019 levels by the end of the forecast horizon. While this will vary by location, overall European take-up will remain 19% below the 2019 level in 2027.

Since the pandemic, the European office market has shown resilience with positive net absorption since Q3 2021. "

4 OFFICES OUTLOOK 2024

THE TIDE IS TURNING GREEN | 5