C&W: 70% of European offices at risk of becoming obsolete

Over 170 million sq m of office space, 70% of the stock in Europe, are at risk of being functionally, financially or legally obsolete by 2030, according to Cushman & Wakefield’s newly-published report on ‘Rethinking European Offices 2030’ .

“We see an acceleration in the risks of offices becoming obsolete,” said Nigel Almond, head of EMEA office research, C&W. “Our estimate of over 170 million sq m of office stock at risk in sixteen European cities is equivalent to more than six times the total office stock in central London”.

There is a clear East/West divide: Western European markets are the worst affected. In seven leading cities – Amsterdam, Barcelona, London, Madrid, Milan, Paris, and Stockholm – close to 80% of stock is at risk of obsolescence.

Eastern European markets like Budapest, Prague, and Warsaw, all have lower risks of obsolescence and a lower volume of stock at risk, (averaging just 43%), reflecting the fact that much of the built stock has been delivered over the last couple of decades. Since 2004, the office stock in Eastern European markets has more than doubled.

By contrast, in the West, most markets have seen stock grow by less than 20%. The risk is not uniform: cities like Munich (60%), Lisbon (64%), Dublin (64%) and Berlin (65%) have relatively lower risks compared to other Western markets, reflecting the fact that much of the stock there has also been developed over the past two decades.

The market is likely to become even more polarised, the research shows, and there will be a growing divide between best-in-class, centrally located assets and those in peripheral, secondary locations where vacancy risks are higher. Higher vacancy in non-central locations is driving a widening discount in values.

The value differential between offices and other uses has narrowed since 2019, providing a greater incentive to consider alternative use types, but clear strategic analysis is required at an asset level to determine the best solution.

Repositioning of assets is likely to be the optimal solution in CBD locations with strong demand for best-in-class space and premium rents being achieved. “Landlords need to understand their space and whether repositioning or repurposing is the best strategic approach,” the report states.

On the positive side, the working-from-home trend has had less of an impact in Europe than the US, which has led to lower vacancy rates in most European markets.