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Office Market: The Avalanche Approaches For Companies, Workers, And Landlords

Office Market: The Avalanche Approaches For Companies, Workers, And Landlords

Based on responses from more than 4,300 office-based workers and 1,500 Senior Decision Makers on behalf of their employees, surveyed across six countries, Barclays Capital believes that the work from home (WFH) revolution is upon us. Employees are expecting to work 60% more from home (to 1.6 days on average/week), while employers expect WFH days to double (to 2.0 days on average/week). Moreover, their responses show the WFH Revolution is geographically broad-based, and people across ages, genders and industries anticipate changes, though we find that larger organisations in the telecoms, media, consulting and professional services industries expect a greater quantum of change.

 

Looking at the Cyprus office market, the expectation is for a 10-15% structural reduction in aggregate office demand as corporates adopt the WFH model and traditionally bureaucratic institutions increasingly digitise and automate various processes. The reduction in demand will be geographically spread and the actual impact could potentially exceed this range depending on location and building quality.

 

We see a Hybrid model integrating WFH and office-based functions as the most likely outcome and believe the Hybrid model is an enabler of diversity, offering organisations greater access to a more varied talent pool. Organisations that do not embrace the WFH Revolution may run the risk of being left behind, as do employees who are unable to adapt to this new working environment. This also comes at a time when various pillars of the economy are undergoing substantial change (e.g. the banking industry), are under pressure (tourism), or are entering a challenging period (real estate). The combination of the above will result in accentuated pressure on employees and on the need for them to adapt and/ or retrain, looking to embrace this rapid pace of change rather than fight or standstill against the oncoming avalanche.

 

The potential structural rebasing of demand could drive a more material decline in rents and capital values. We khow that changes in vacancy rates have an amplified effect on rental changes and consequently, capital values. As we expect availability of space to increase, especially for Grade B office space being released by financial institutions, we believe capital values of office buildings could be materially impacted. We anticipate an increased divergence between demand for prime and secondary offices. Well-capitalised landlords may find an opportunity in developing offices that provide facilities for the Hybrid model and thus command rent premiums.

 

Times are changing fast.

 

* By Pavlos Loizou, Managing Director, WiRE FS

pavlos.loizou@wire-fs.com 

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