As a result of the Covid-19 pandemic, occupiers are reassessing their needs for office space as working from home has been implemented. On the back of the 2020 GDP decline, we forecast rents to come down by nearly 10% this year. So far, in 2020 Q2 take-up is down over 20% and vacancy has ticked up by 20bps from a record low of 5.4% in Q1 2020.
· While others are mostly focused on the demand side impact, few are considering the supply side of the market too. In previous reports we have noted that oversupply of new space has exacerbated previous market downturns. In this latest Covid-19 update, we take a closer look at the impact of the pandemic on the latest supply pipeline data.
· The good news is that expected new supply remains at less than half the level seen pre-GFC. For the 2020-24 period we project new supply at 1.3% of existing stock pa relative to the pre-GFC period at 2.7% pa.
· In addition, JLL has estimated a decline of 9% in 2020-22 supply across 15markets since the start of 2020, mostly as a result of Covid-related delays in construction due to the health and sanitary measures and material shortages.
· Furthermore, development focused land and redevelopment acquisitions as a share of total office acquisitions, have continued their long term downward trend.
· Post-GFC lending regulations have limited banks from committing to speculative development projects, despite a recent uptick in 2018 in Germany. Based on more recent data, we expect that post Covid-19 conditions will further tighten finance availability and terms for office development.
· As investors, developers and lenders come to grips with lower occupational demand, we also expect that many office developments will be postponed, down scaled or cancelled over time. This will further reduce the new supply across markets.
· Nevertheless, some Central and Eastern Europe (CEE) markets, Dublin and Barcelona face large supply pipelines. Construction is also picking up in Amsterdam, Lyon, Berlin and Munich, but these markets are protected by record low vacancy rates below 4%.
· In the largest European office market, Paris, we highlight that based on our in-house database, the pipeline is significantly larger than indicated by CBRE. The new office pipeline for Paris is mostly concentrated in La Défense and inner rim sub-markets.
Source : Company