Office markets in the EMEA region will recover from the COVID-19 crisis faster than expected according to Colliers International.
Damian Harrington, the firm’s head of EMEA research, said the market will come back in the second half of 2021.
Presenting his findings during Colliers’ EMEA Office Markets Update: The Current State of Play – Opportunities and Risks on the Road Ahead online event he said, “Even though vacancy is going to increase, it is going to be primarily from the release of less attractive space, while the demand and the availability of core space is going to get tighter, creating higher prime rents, long-term.”
He added that the recovery of the EMEA office market was linked to the wider context of the economic recovery path of countries across the region.
Although office take up declined in the first three quarters of 2020 as decisions were put on hold, the market does not look as bad as that in 2007-2009, during the Global Financial Crisis.
“Net absorption and take up may continue to drop to the end of this year and into 2021, but I still don’t think we’ll quite hit GFC levels,” he said.
Lower unemployment and stimulus makes the difference
“Even when we do get to the bottom, I think the rebound is going to be a lot sharper because unemployment rates are not as high as they were during GFC. Furloughing and government stimulus are sustaining employment levels, which supports a quicker rebound when markets do return. Post-GFC, it took about five years from the trough before labour markets got back to parity. This key factor looks very different this time around”.
Harrington said prime headline office rents remain largely unchanged across EMEA, although greater incentives are being offered. And while office vacancy is increasing, the EMEA average was only 6.5%, more than 200 basis points below the cyclical (14 year) average.
Berlin is EMEA’s strongest office market with 1.4% vacancy and rent stability in prime and secondary CBD areas. It is regarded as a landlord’s market and is forecast to remain as such for at least 12 months.
Dubai, however, has 40% vacancy and rents in both prime and secondary CBD areas are decreasing. It is currently a tenant’s market, which Colliers predicts will persist for at least 12 months.
Harrington also said that, unlike during the GFC, there is broader policy support for fiscal stimulus at government and supra-national levels, such as from the International Monetary Fund and World Bank supporting a quicker recovery from the economic impact of the pandemic.
“The market will recover,” said Harrington. “China is already moving through the recovery phase into consolidated growth, with GDP figures for Q3 2020 representing a 4.9% increase in economic output, year on year. Most other Asia-Pacific countries are working through their second wave of COVID-19, with active cases diminishing, and their economies recovering.
Harrington said that most European economies appear set to return to growth in the first half of 2021, although another raft of local and national lockdowns may push the economic recovery back.
“The economies with the best healthcare capacity and management of the virus look like being the ones that will be out of this sooner, as per the first wave, with the DACHs and Nordic markets most prepared.” he added.