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Vacancy in the office market is declining despite lower demand

Jan Verhaegh • 01/10/2020
New use of office space decreases by 22% in the first three quarters of 2020.

The latest figures from international consultant Cushman & Wakefield show that the total office space that changed users in the first three quarters of 2020 decreased by 22% compared to the same period last year. In total, 694,000 m2 of office space has been taken into use since January of this year. Cushman & Wakefield compared the so-called office take-up in the first three quarters of 2020 with that of the same period in 2019, the decrease was strongest in the five major
cities (-39%).

Vacancy in the office market decreased by 0.1 percentage point to 8.2% of the total office stock in the Netherlands. This is the lowest vacancy rate since 2002.

In the Netherlands, the supply and vacancy of office space are developing stably. There is still very little supply on the largest office markets. Despite the pandemic, the supply of offices fell slightly to 4.7 million m2.

Jan Verhaegh, Head of Office Consultancy: “The structural shortage of good offices in the best locations has a greater influence on the lagging office take-up in the five major cities than the COVID-19 pandemic. We do see across the board, at home and abroad, that office users who are not yet dealing with an expiring lease contract will first focus on short-term measures to limit the consequences of the pandemic. Office users in the major cities do not consider a 'second best' location an option, so relocation plans are being postponed whenever possible. After all, a relocation must also bring a quality improvement, which is almost impossible in the current market in the large cities.

Biggest drop in office take-up in G5 cities

In the five major cities, the take-up of offices decreased more than in other cities over the past three-quarters of the year (-39%). Where in the past 10 years the share of the G5 in office take-up was invariably above 50 percent, so far this amounts to 41% (2019: 52%) of the total take-up in the Netherlands. The greater pressure on take-up in the G5 and the difference between take-up within the G5 versus the rest of the Netherlands is, according to Jos Hesselink, Research Lead of Cushman & Wakefield, a result of the continuing scarcity of high-quality office real estate in these cities.

Despite the pandemic and the resulting mitigations, user transactions still took place. In Amsterdam, Uber (30,000 m²) and Adyen (13,000 m²) recently leased substantial volumes of office space. With only 3% lower take-up compared to the same period last year, the Rotterdam office market performed at almost the same level as in 2019. Attractive transactions that contributed to the relatively high take-up in Rotterdam are the lease of the Maastoren by the State of the Netherlands ( 7,000 m²), transactions on the Blaak by the Mediterranean Shipping Company (5,500 m²), Housing Anywhere (2,500 m²) and Swisscom in the WTC. Relocation processes already started and the availability of high-quality offerings at good locations were responsible for the continuous deal flow in the port city. So far, 17% less office space has been taken up in Amsterdam than in the same period last year, while take-up in Utrecht was 40% lower. For Utrecht, take-up was particularly high in 2019 and as a result the supply almost completely dried up in 2020. The transaction dynamics in the office markets in Eindhoven (-72%) and The Hague (-87%) are substantially behind compared to last year.

Supply and Vacancy

The total supply of available office space in the Netherlands is currently 4.7 million square meters, of which 3.9 million square meters is actually vacant. The remaining 800,000 m2 is available for rent but is still in use or under development. The office vacancy rate as at 30 September 2020 was 8.2%, which is slightly lower at 0.1 percentage point than last year. The vacancy rate is lowest in the big cities, confirming its popularity:

  • Amsterdam (4.5%)
  • Utrecht (4.9%)
  • The Hague (4.3%)
  • Rotterdam (8.2%)
  • Eindhoven (8.2%)

Although the vacancy rates in the largest office cities are currently very low, the supply has sometimes increased. In Amsterdam, for example, the supply has increased by 65,000 m² compared to the start of this year as a result of new office buildings to be realized that will be completed in the coming years. About a quarter of the Amsterdam office supply is currently under construction (24%).
The limited amount of new supply and the lagging office take-up in 2020 can be partly explained by the cautious attitude of office users and lessors of offices:

  • landlords are reluctant to bring too much new office supply to the market in the current corona period due to the increased uncertainty about the rent to be realized and the time it takes to find a new tenant;
  • many building owners opt for extending lease contracts on favorable terms in exchange for a stable cash flow for the current tenant during this special time. The tenant can focus on the continuity of his own business operations without the burden of a relocation process, while he can then consider whether the current use of office space will be maintained or change its nature permanently.

Outlook for office take-up 2020

Now that the restrictive measures as a result of the COVID-19 pandemic are continuing for longer than expected in April this year, Cushman & Wakefield expects the total office take-up in 2020 to amount to approximately 1 million m2. That means a decrease in take-up of 29% compared to 2019 and a decrease of 17% compared to the five-year average.
Cushman & Wakefield also expects the supply of high-quality office buildings in prime locations in the major cities to increase as a result of the economic contraction caused by the corona pandemic. For example, organizations will increasingly opt for subletting as part of cost-saving measures.

Verhaegh adds: “The COVID-19 pandemic has brought an enormous acceleration in a new role and function of offices. We are convinced that the office will become more important than ever and has a key role in creating social interaction, inspiring, learning and developing and working together on the organizational goals. The combination of working in the office and at home ensures a better work-life balance, while the lower occupancy rate in the offices will bring new, better workplace concepts that better facilitate collaboration, information sharing and learning and concentration.

 

 

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