Cushman & Wakefield Releases 2020 Global Office Impact Study

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Study predicts office sector recovery to be slow, but full recovery expected despite work- from-home trend 

Cushman & Wakefield (NYSE: CWK), a leading global real estate services firm, released its first-ever Global Office Impact Study, projecting that the world’s office leasing fundamentals will be significantly impacted by the Covid-19 recession and the work- from-home trend, but they will ultimately begin to improve in 2022 and will fully recover 2-3 years later.

The full recovery timeline is consistent with what was observed during the Great Recession, but at a slight lag due to the work-from-home trend. The report was developed by the firm’s newly organized Global Think Tank, a team of senior researchers and economists from around the world. The study analyzed the cyclical and structural changes impacting the global office market and the implications for recovery. 

“We set out to answer the foundational and somewhat ambiguous question of ‘what will become of the office’ by taking a deep, scientific look at the forces created by this pandemic and the cumulative impacts on office sector fundamentals,” said Kevin Thorpe, Cushman & Wakefield’s Chief Economist and Global Head of Research. 

“We’ve examined the collective impact of these forces, including job losses, office vacancy and rental rates, geographic characteristics, and work from home expansion, to establish future-looking scenarios that, under our base case, ultimately project a full global office market recovery. Of course, all real estate is intensely local, and not every local market will follow the same path to recovery.” 

Key findings from the 2020 Global Office Impact Study are concentrated on the full economic and employment recovery anticipated for Q1 2022, and the corresponding demand for office space as vacancies begin trending downwards and rental rates begin appreciating. By 2025, global office vacancy is anticipated to return to pre-crisis levels of approximately 11%, with rents returning to pre-crisis peak levels. 

“Even though the impact of work-from-home trends will slow the office market recovery, the overall growth in office-using job sectors along with many other factors – including agglomeration, culture/branding, and productivity – collectively indicate that the office will continue to play an important role in the economy going forward,” said Rebecca Rockey, Global Head of Forecasting at Cushman & Wakefield. “With this study, we’re looking into an uncertain environment through the lens of evidence, data, and science.” 

In Asia Pacific (excluding Greater China) , at the aggregate level, the impacts of the current global recession are more benign and shorter-lived than elsewhere around the world. For the most part under the baseline scenario, all economies in the region return to pre-Covid-19 GDP levels by Q3 2021. In the near term, office leasing fundamentals over the next 6-18 months will be challenged by the pandemic’s impact on the slowdown in new office job creation and outright job losses in the immediate term. 

Despite the challenges, demand, as measured by net absorption, is forecast to remain positive from now through 2030. The most recent data provides early evidence that Asia Pacific will be somewhat more resilient relative to the other global regions. In emerging markets, rapid movement up the value chain throughout the region will increase the region’s share of jobs that are office-using.

More advanced markets, in contrast, will experience lower demand which will flow through to weaker rental growth. 

“Asia Pacific continues to show its resilience relative to other regions but is not immune to the negative impacts of the pandemic. The region entered the crisis with a formidable supply pipeline with a robust wave of office development slated for delivery in 2020-2022. Consequently, we had already seen some softening in markets with increasing vacancy and rental decline prior to the pandemic, and our current forecasts reflect an intensification of that trend,” said Dr. Dominic Brown, Head of Insight & Analysis, Asia Pacific at Cushman & Wakefield. 

“More widely, increased flexible working and work-from-home practices are less prevalent across Asia Pacific as a whole compared to other regions and so do not meaningfully alter the outlook for the region’s office market. From 2022-2030, we expect net office demand to grow by 729 msf in the region, despite a 4.5% drag due to the impact of work-from-home.” 

For Greater China, the trending increase in vacancy rate pre-Covid-19 is expected to accelerate in the face of weaker demand. Demand for space begins to catch up with new supply in late 2022 and vacancy begins trending down in 2023. Class A rents are expected to soften in 2020 and 2021, then broadly flat in 2022 before returning to growth in 2023. 

Like Asia Pacific, the level of occupied stock is expected to continue rising over the entire forecast horizon despite weaker near- term demand, supported by other structural factors such as increasing office-based employment. Of all the regions studied in the report, Greater China’s structural office demand is estimated to be the least impacted, with only a 2.9% drag due to the impact of work-from-home, and net office demand is expected to grow by 536.1 msf from 2022-2030. 

The 2020 Global Office Impact Study is the first of a four-part series, which will provide a new and thoughtful look into the future of the office, and the role it will play in a post-pandemic environment. 

Read the 2020 Global Office Impact Study HERE