Spatial efficiency in the Gelderland office market
1 The Question
With the impact of COVID-19 on office use, the ongoing 'war for talent' and the current market uncertainties, the office market is preparing for a new phase. Because of the many temporary leases, a surplus of office space, depending on the exact course of this transition, will not enter the market for several years. An increase in vacancy rates could be a consequence. In order to respond adequately to this, the Province of Gelderland intends to formulate an adaptive strategy that anticipates vacancy trends. The Province of Gelderland has asked Cushman & Wakefield to conduct a study of the future resilience of the Gelderland office market and the transformation potential of offices that are not future-proof.
2 The Approach
Defining the characteristics of a 'quality office' is the starting point for determining whether and in which office locations in Gelderland the vacancy rate will increase. These offices can continue to meet market demand in the future and are therefore future-proof. Offices that are not defined as 'quality offices' require specific interventions such as a quality impulse for the building or area, or withdrawal, change of function and transformation.
To determine whether an office qualifies as a "quality office," Cushman & Wakefield has developed a quality label for each office. This quality label expresses the quality (or: probability of occupancy) and future-proofness of all 26,000 offices in the Netherlands. This means that we have direct insight into the future-proofness and underlying quality aspects of approximately 1,950 offices in Gelderland.
Three vacancy scenarios were simulated based on qualitative trends and developments in the office market, quantitative analyses of market dynamics in the six regions of Gelderland, and policy ambitions for housing and offices:
- Scenario 1 - The situation remains as it is now. Vacancy is at friction level.
- Scenario 2 - Vacancy increases (on top of friction level).
- Scenario 3 - Vacancy rates increase sharply (above friction level).
By confronting these vacancy scenarios with the quality labels for each office, it is possible to determine which offices and which locations are vulnerable to vacancy and whether there is potential for extraction and transformation to housing.
3 The Result
Based on market dynamics, the most realistic vacancy scenario was selected for each region. For this scenario, individual offices are tagged and qualified based on opportunity labels for certain interventions such as transformation to residential or realizing quality impulses at the area and/or building level.
The results show quantitative oversupply and qualitative shortages. Attractive office locations (multifunctional areas that are easily accessible) in the province of Gelderland are scarce and are coming under further pressure. Although no substantial (quantitative) increase in vacancy is expected as a result of the transition of the office market, a mismatch does exist. Based on the expected vacancy development for the entire province, it appears that, of the offices in Gelderland:
- 80% have been identified as 'promising'. These offices do not require immediate interventions, although optimization opportunities exist
- 9% have been qualified as 'opportunity-rich'. These offices can be further optimized by realizing quality impulses at the area or building level
- 11% have been designated as 'low opportunity'. For the benefit of a future-proof office market, the potential for function change and/or withdrawal should be explored for these offices. This improves the Gelderland market conditions and thus the use and yield of the office buildings
Some potential exists within the existing Gelderland office stock for the realization of housing. If the transformation potential is fully utilized, 1,125 to 2,220 dwellings can be realized. However, the transformation of obsolete offices does not appear to be a straightforward approach to the realization of the entire housing task in Gelderland, where the ambition is to realize 90,000 new housing units through 2030.
The results of this study can be used for the benefit of the realization of a more future-proof Gelderland office market. On the one hand, this can be done by providing feedback on the results to municipalities. On the other hand, the Province of Gelderland has an important role to play in the 'spatial puzzle' to be solved.