Office Space Crunch: A City-Centric Comeback Amid Investment Challenges
Demand for premium office space in major cities like London and Paris is rising due to stricter return-to-office mandates by companies, but investment remains low due to high borrowing costs and uncertain pricing, leading to a supply crunch in prime locations.
The demand for premium office space in urban hubs like London and Paris is on the rise as more companies enforce stricter return-to-office policies. Major businesses such as JPMorgan, Amazon, and the Royal Bank of Canada are leading the charge, while others like UBS and Deutsche Bank implement specific remote working guidelines. This shift is seen in decreasing vacancy rates and rising office rents in prime city locations.
Despite growing demands, investor caution prevails as they hesitate to buy or construct new properties, deterred by uncertain pricing and elevated borrowing costs. Lee Elliott from Knight Frank indicates a supply shortfall in quality office space, intensified by increased demand. Central London vacancy rates dropped to 7.1% in March, the lowest since 2020, albeit still above pre-pandemic figures.
Outside central areas, however, vacancy rates have escalated in broader London, reflecting reluctance over older, less central properties. This mixed situation hampers investment; European office sales have plummeted, marking a significant downturn since 2009. Yet, some companies are reconsidering downsizing plans, potentially stabilizing the market as demand for existing office space grows.
(With inputs from agencies.)
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