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 AvisonYoung’s Mid-Year 2018 North America and Europe Office Market Report.
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)
