By Mark E. Rose (Toronto)
Amid
varying economic performances and property fundamentals, North American and
European office leasing markets are generally performing well as they undergo
an important shift in dynamics influenced by trends transforming both occupier
demand and the supply of new product. Traditional drivers of demand are being
joined by emerging disruptors that will increasingly shape the future of the office-space
market and commercial real estate as a whole.
These
are some of the key trends noted in Avison Young’s Mid-Year 2017 North
America and Europe Office Market Report: https://avisonyoung.uberflip.com/i/861690-aymid17namericaeuropeofficemktreportaug16-17final
The
office sector and commercial real estate, in general, are not immune to the
effects of globalization and technological innovation. The world is
transitioning into a more distributed, automated and digital economy, which
impacts how occupiers conduct business and think about their workplaces, and
this transition may have profound implications on the role and intrinsic value
of property. In turn, owners and developers are finding ways to adapt and
provide flexible work environments that meet these changing requirements.
Rapid change has given rise to the idea that technological advances
could render physical real estate increasingly obsolete. However, historical
evidence suggests that technology is just as likely to create new jobs as to
displace them. For example, the likes of Amazon and WeWork are among the
occupiers that feature most frequently in our report’s survey of the largest
lease transactions across Avison Young markets.
Amazon’s success in the digital realm is translating into increasing
demand for physical space – not only in the retail arena, but also the
industrial and, now, office sectors, pointing to a new driver of demand in the
office market as the e-commerce industry continues to grow. Meanwhile, the
growth of WeWork and other providers of co-working and space-sharing services
demonstrates that business will still require physical workplaces, even as we
move toward an interconnected world offering anywhere-anytime access to skills
on demand.
With Canada and the U.S. intertwined by close economic ties, the aforementioned
disruptive trends continue to shape the Canadian and U.S. office markets, while
in Mexico City, oversupply has led to the postponement of some new construction
projects. Turning to Europe, the U.K. market is in flux one year on from the
Brexit vote; Germany’s markets are reporting strong performances with declining
vacancy rates year-over-year; and in Romania, the newest country on the Avison
Young map, solid results in Bucharest have been driven by the
information-technology and communications sector.
According to the report, of the 64 office markets tracked by Avison
Young in North America and Europe, which comprise almost 6 billion square feet,
market-wide vacancy rates decreased in 40 of the markets as nearly 52 million
square feet (msf) was absorbed on an annualized basis.
Occupiers’ desire for new product remains strong and the development
community has responded, as more than 62 msf of office space was completed
during the 12-month period ending June 30, 2017. Meanwhile, another 134 msf was
under construction at mid-year 2017 – with 50% of the space preleased.
(Mark Rose is Chair and CEO of Avison Young.)
