Office space market

The office space market was the most seriously affected by the pandemic. The COWID crisis closed many offices, CBRE Consulting found that only 10% of Manhattan employees had returned to their jobs as of September 18, indicative of the complexity and uncertainty of the market. Less than a third of employees in the city work from the office, according to a Cushman & Wakefield Forton survey of office building owners and tenants conducted in the first half of October. The survey of companies with a total of more than 42 thousand employees shows that 84% of companies are unclear when they will permanently return their employees to the office, and 15% plan to do so by spring 2021. In a similar survey in June of this year, the vast majority of respondents were considering returning employees to their jobs in the fall. The shifting of this deadline is linked to the growing coronavirus outbreak and associated uncertainties for businesses. Nearly 60 percent of office buildings in the Cushman & Wakefield Forton survey indicated they had no vacant space. At the same time, however, 48% of tenants plan to reduce their occupancy and 44% plan to maintain their current office size.

Globally, many companies have extended working from home until July 2021, among them Microsoft, Target, Uber, Slack and Ford Motor Company. On the other hand, there are also companies that seem to be continuing to bet that the physical office will survive the pandemic. In New York City, for example, tech giants Amazon, Apple and Facebook have leased 148 thousand square feet of office space this year.

Here are some trends that I would like to outline for the office space market, which have more or less manifested themselves in recent months.

  • Working from home is here to stay - if last year working from home accounted for about 5 - 5.5% of the total, this year the percentage is double 10 - 11% with a tendency to get higher until it reaches about 20%, at which level it will remain stable.
  • Increasingly flexible landlords - and while office space prices were relatively constant before the crisis, many landlords are now, and I believe will in the near future, undertake a stepped pricing scheme for office space, with slightly more attractive momentary levels and slight increases in the medium term. Many will also take the position of short term lettings and we will increasingly see 1 or maximum 2 year leases to relieve tenants in a worse economic climate. To be able to attract quality tenants, landlords may also need to invest in improving the office environment and expanding the services offered from just renting space, adding traditional inside office management to help the tenants themselves.
  • Investor retreat - many investors will retreat from the purchase of office space in order to realize rental yields due to the great uncertainty in the realization of the premises, as evidenced by the data of the consulting company CBRE that 49.2 billion euros were invested in commercial real estate in Europe in the third quarter of this year, which is a decline of 36% compared to the same period of 2019.
  • Co-working and Flex-office The Co-working and Flex-office trend had clearly started even before the COWID crisis, but as the crisis progresses and deepens, more and more companies will prefer to share an office with other partners or take advantage of specialized Co-working spaces, as this kind of service is offered in more and more office buildings, and now even in some hotels and gated communities. There is still a shortage of Co-working offices in Bulgaria, and this represents a niche that more and more investors will pay attention to.
  • The office as a meeting place - the office will continue to exist, it will just have to evolve from a physical place to work to an activity based office or a place to carry out different types of activities, the traditional "go to work" is a thing of the past, the work from everywhere trend is increasingly relevant, offices will offer many more facilities, such as dedicated meeting rooms with colleagues, team and clients, places for recreation, shared work areas and much more. Statistics show that in 2010, if there was an average of one person per desk, there are now an average of 1.7 people per desk, which is a clear indication of the evolution of office spaces.
  • Larger spaces will be increasingly sought after - minimum spacing requirements between employees will lead many businesses to prefer to rent larger offices to comply. There are even a few software currently available to help determine the exact internal layout of an office so that space can be optimised and spacing requirements met.
  • There may be a relocation from the big office centres - there is a good chance that we will see companies moving from Sofia to the countryside - Plovdiv as the closest destination, Stara Zagora, Burgas and others, in an attempt to cut costs. Office prices in these cities are about 30 to 50% lower than in the capital, and we could see a reverse movement of staff to the countryside as well.
  • New Eco-sustainable buildings will emerge and old ones will need to be converted to cope with the current situation as well as be ready for future new ones.

In general, man is a social individual, he needs a social environment and live people to interact with to develop and manifest his genius, sooner or later he will return to the office, working from home seems attractive for the moment, but it has been proven that prolonged downtime lowers employee productivity. The office is the home of company culture and branding, it's an environment where everyone learns, shows results and they can be seen and rewarded, something that can't happen with working entirely from home. Most likely we'll end up with some sort of hybrid work model - a certain percentage home office, the rest of the time office work, which depending on the nature of the work will be different from company to company. Software is even currently being developed to determine how often and how often employees should visit offices, so that anti-epidemic measures can be met and office space can be maximised.

For the cities and countries that are quickly dealing with the COVID virus, this is a great chance to take advantage of the situation and attract quality investors and staff to fill the new office buildings, thus realizing good returns and developing the infrastructure and the lives of their residents. And tenants who are quicker to make decisions about their business model and pinpoint the exact offices they need will be able to strike good deals to help them grow in the future.

I end with an optimistic statement from Damien Harrington, head of research for EMEA at Colliers. - "The market will recover, probably faster than expected, in H2 2021, although vacancy will increase, this will be mainly due to less attractive space coming to the market and demand and availability for prime space tightening, creating higher rents for prime space in the long term."

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