Savills : What Europe can learn about the future of its office market as Asia returns to city working?

With most of Europe continuing to see Covid-19 restrictions, might Asia provide the answer to what the future holds for city working and office requirements?

Analysing Apple's global transit mobility levels between 25 January and 25 November 2020, Asian cities such as Singapore and Seoul are back to approximately 80-100 per cent of pre-Covid-19 levels. In comparison, at the same point in time, Berlin and Paris stand at 50-60 per cent of transit levels before the pandemic broke out.

Given Europe's most recent restrictions are generally not as severe as during the first lockdown with, for example, the vast majority of schools and nurseries staying open, we expect public transit levels to soon return to comparable levels as observed in September. Accordingly, unless there is another wave, European cities should be catching up with their Asian counterparts' mobility levels in a few months.

Vaccine announcements from Pfizer, Moderna and AstraZeneca will provide a boost to occupier sentiment, although approval and distribution will still take months to implement.

Meanwhile, what will happen to rents? It is clear that over the next few months at least, supply will be on the rise with the release of some occupied space, less pre-letting and the increasing search for sub-tenants.

For most European cities, this will mean that the rise in rents we have seen in recent years will come to a halt. However, the phenomenon will not be homogeneous. For example, in Paris city centre, prime rents will stabilise and adjustments will be made primarily through rent-free periods and support measures. Outside the city centre, downward adjustments in headline rents will be much more visible, particularly in sub-markets such as La Défense.

Overall, in Europe we anticipate office space decision making could return to comparable levels to pre-Covid-19 from Q2 2021 as occupiers consider their office requirements for the remainder of the year.

With many landlords keen to keep their existing tenants given the current circumstances, there is a window of opportunity for occupiers. Those with a lease event in less than 12 months' time who are happy with their current office may want to begin talks with their landlord now while reviewing alternative options.

Further information

Contact Mike Barnes

Impacts: Office demand in a post-pandemic world