C&W sees global office recovery by 2025

Real estate services firm Cushman & Wakefield (C&W) has completed a study of the global office market against the background of the Covid pandemic and forecasts improvement beginning in 2022 and full recovery by 2025. The study found that an important factor is work-at-home and the level at which it will fundamentally alter how businesses handle their office space requirements.

The report was developed by C&W”™s Global Think Tank, a team of senior researchers and economists.

“We set out to answer the foundational and somewhat ambiguous question of ”˜what will become of the office”™ by taking a deep, scientific look at the forces created by this pandemic and the cumulative impacts on office sector fundamentals,” said Kevin Thorpe, C&W’s chief economist and global head of research. “We”™ve examined the collective impact of these forces, including job losses, office vacancy and rental rates, geographic characteristics, and work-from-home expansion, to establish future-looking scenarios that, under our base case, ultimately project a full global office market recovery. Of course, all real estate is intensely local, and not every local market will follow the same path to recovery.”

The study looks for full economic and employment recovery for the first quarter of 2022, and a corresponding demand for office space as vacancies begin trending downwards and rental rates begin going up. It anticipates that by 2025, the global office vacancy rate will return to pre-Covid levels of approximately 11%, with rents returning to pre-pandemic peak levels.

Rebecca Rockey, global head of forecasting at C&W said, “Even though the impact of work-from-home trends will slow the office market recovery, the overall growth in office-using job sectors along with many other factors, including agglomeration, culture/branding and productivity collectively indicate that the office will continue to play an important role in the economy going forward.”

The study suggested that the U.S. office sector is expected to shed 145-million square feet over through 2021. It said that owners may look for creative solutions, including offering free rent and increased tenant improvement concessions, but aggregate annual average asking rents are ultimately expected to decline by 6.5% in 2021 and another 2.3% in 2022.

Over the 2022 through 2030 period, the C&W study expects office demand to be 15.8% lower than it otherwise would be due to a structural increase in work-from-home. The figure could be as low as 8.2% if companies expand per-worker footprints by 25% due to social distancing requirements.

The study took the position that the share of people working permanently from home in the U.S. and Europe would increase from the aproximately 5% or 6% before Covid to 10% to 11%. It expected that in Asia, especially China, work-from-home would continue to be less common.

The study noted that the U.S. and Canada had similar levels of remote work before the pandemic, including both permanent remote workers and those who only work remotely part-time. It found the effects of work-from-home on office space absorption rates are similar even though the U.S. has an office inventory approximately 10-times that of Canada. C&W said it expects that over the 2022-2030 period the office demand would be 14.5% lower in Canada than the U.S.

The study reported that a potential lasting effect of Covid might be the reversal of a decades-long trend in which businesses have been taking less space per employee.

“COVID-19 is requiring society to social distance in the near-term and disrupting the trend. It is still unclear if a structural reversal of densification ”” dedensification ”” will persist, however. At a minimum, we believe that densification will stop and that practices that allow for distancing, such as agile working and rotating shifts, will increase,” the report said.

The report found that a global office vacancy rate of 10.9% before the Covid crisis will increase to 15.6% in the second quarter of 2022.

“As the economy and employment recover, the globe”™s office sector begins absorbing space in 2022 Q1 and vacancy begins trending downwards from that point forward. Global office vacancy returns to pre-crisis levels of approximately 11% by 2025. Globally, rents bottom in 2022 Q1 and begin appreciating from that point forward, returning to pre-crisis peak levels in 2025,” the report said.

The report cited multiple surveys of both workers and executives show”¨ing that most people want to be in an office at least a ”¨few days per week but with some changes including increased flexibility to work from home, social distancing ”¨in the office, more private desks, more private defined space and fewer shared desks.