- Global study predicts office sector recovery to be slow, but full recovery expected despite work-from-home trend
- Less affected by the work-from-home trend, Hong Kong office market is expected to see a certain level of momentum starting 2H 2021
HONG KONG, CHINA – Media OutReach – 19 October, 2020 – Cushman & Wakefield (NYSE: CWK), a leading global real estate services firm, recently released its first-ever Global Office Impact Study, projecting that the world’s office leasing fundamentals will be significantly impacted by the COVID-19 recession and the work-from-home trend, but they will ultimately begin to improve in 2022 and will fully recover by 2025. The full recovery timeline is consistent with what was observed during the Great Recession, but at a slight lag due to the work-from-home trend. The report was developed by the firm’s newly organized Global Think Tank, a team of senior researchers and economists from around the world. The study analyzed the cyclical and structural changes impacting the global office market and the implications for recovery.
“We set out to answer the foundational and somewhat ambiguous question of ‘what will become of the office’ by taking a deep, scientific look at the forces created by this pandemic and the cumulative impacts on office sector fundamentals,” said Kevin Thorpe, Cushman & Wakefield’s Chief Economist and Global Head of Research. “We’ve examined the collective impact of these forces, including job losses, office vacancy and rental rates, geographic characteristics, and work from home expansion, to establish future-looking scenarios that, under our base case, ultimately project a full global office market recovery. Of course, all real estate is intensely local, and not every local market will follow the same path to recovery.
Key findings from the 2020 Global Office Impact Study are concentrated on the full economic and employment recovery anticipated for Q1 2022, and the corresponding demand for office space as vacancies begin trending downwards and rental rates begin appreciating. By 2025, global office vacancy is anticipated to return to pre-crisis levels of approximately 11%, with rents returning to pre-crisis peak levels.
“Even though the impact of work-from-home trends will slow the office market recovery, the overall growth in office-using job sectors along with many other factors — including agglomeration, culture/branding, and productivity — collectively indicate that the office will continue to play an important role in the economy going forward, said Rebecca Rockey, Global Head of Forecasting at Cushman & Wakefield. “With this study, we’re looking into an uncertain environment through the lens of evidence, data, and science.”
The study finds that increased flexible working and work-from-home practices are less prevalent across Asia Pacific as a whole compared to other regions and are unlikely to have meaningful alteration on the outlook for the region’s office market. In Hong Kong, office demand will likely remain driven by cost-saving relocations over the near-term. Keith Hemshall, Cushman & Wakefield’s Executive Director & Head of Office Service, Hong Kong said: “Should the Covid-19 vaccine be available by mid-2021, we expect the market to regain some positive momentum in the second half. Leasing activity is likely to be concentrated in upcoming new developments that offer high quality specifications and attractive commercial terms for pre-commitment. Some of the key developments including Two Taikoo Place (Swire Properties) in Quarry Bay, AIRSIDE (Nan Fung Group) in Kai Tak, 98 How Ming Street (Sun Hung Kai Properties) in Kwun Tong and 91 King Lam Street (New World Development) in Cheung Sha Wan will draw significant tenant interest.” In view of this, Cushman & Wakefield forecasts the city’s Grade A office net absorption will return to a positive level in 2022, amounting to around 1.1 million sq ft.
However, from a Landlord perspective, the 3.8 million sq ft of new supply forecast for 2022 will be the highest annual total on record and will exert significant downward pressure on rents. Eric Chong, Associate Director of Research Hong Kong, at Cushman & Wakefield, said: “Despite a positive take-up forecast in 2022 and 2023, landlords in the city are likely to come under increasing pressure due to these large-scale new developments entering the market. We expect average rentals in Overall and Greater Central to decline by 25-30% and 32-37% between Q3 2020 and Q4 2023 before bottoming out in 2024.”
The 2020 Global Office Impact Study is the first of a four-part series, which will provide a new and thoughtful look into the future of the office, and the role it will play in a post-pandemic environment.
Read the 2020 Global Office Impact Study here