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Wednesday, August 22, 2018

Evolving workplace trends force office occupiers and owners to adjust traditional strategies


By Mark E. Rose (Toronto)

New approaches from technology companies and co-working providers across North America and Europe are challenging occupiers’ and landlords’ office-space accommodation strategies, forcing players in more established sectors to adjust how they think about the size, physical form and operational function of their premises. This transformation continues to encourage new development, which is racing to keep up with demand in some markets and being bolstered by a young, educated workforce gravitating to urban centres.

These are some of the key trends noted in Avison Young’s Mid-Year 2018 North America and Europe Office Market Report https://avisonyoung.uberflip.com/i/1014719-aymid18namericaeuropeofficemktreportaug16-18final . The report covers the office markets in 67 metropolitan regions in Canada, the U.S., Mexico, the United Kingdom, Germany and Romania.

Against a backdrop of economic, geopolitical and financial volatility, the commercial property markets – for the most part – are functioning under relatively sound fundamentals. Nowhere are we seeing more profound changes than in the office sector – especially in urban areas of major metropolitan markets across the six countries covered in our annual review. The impact can be seen on city skylines, which are changing rapidly as new construction picks up pace, driven by insatiable tenant demand from organizations adjusting their workplace strategies to a growing millennial workforce and their adaptability to innovative technologies.

At the same time, sectors that have historically accounted for a significant amount of demand for office space are now being both augmented and squeezed by ever-expanding technology and co-working industries. This phenomenon is being seen across national boundaries, particularly in markets with dense and growing urban populations.

Of the 67 office markets tracked by Avison Young in North America and Europe, which comprise more than 6 billion square feet, market-wide vacancy rates declined in 38 markets, remained unchanged in seven, and increased in 22 markets as almost 74 million square feet (msf) was absorbed on an annualized basis.

Construction cranes remained prominent fixtures across many skylines as nearly 74 msf of office space was completed during the 12-month period, while another 138 msf was under construction at mid-year 2018 – with 50% of the space preleased.

It’s great to see so much confidence on the part of developers as they respond to the supply-demand imbalance in many markets. As always in this industry, the inherent risk is that circumstances could change, resulting in an oversupply of product at the time of delivery. In many cases, this scenario is the result of external economic and geopolitical factors. This time around, however, the new influences of disruptive technologies and increasing co-working space availability are also affecting how and where people work, potentially impacting the office sector from within – and challenging conventional wisdom.

Generally sound office market fundamentals are being threatened on the North American front by ongoing NAFTA talks. In Europe, the looming Brexit deadline continues to dominate the headlines in the U.K., while in Germany, strong leasing activity continues to drive vacancy rates downward in all Avison Young markets. In Bucharest, Romania, development continues in response to demand.

(Mark Rose is chair and CEO of Avison Young)

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