Rethinking European Offices 2030 - Risks and Opportunities from Obsolesence

The report titled "Rethinking European Offices 2030 - Risks and Opportunities from Obsolescence" is published by Cushman & Wakefield, a global leader in commercial real estate services. The authors, Nigel Almond, Emma Swinnerton, and James Young, provide an in-depth analysis of the evolving office market in Europe, particularly focusing on the risks of obsolescence and the potential opportunities presented by the ongoing shifts in occupational demand.

The study reveals that by 2030, over 170 million square meters of office space across sixteen European cities is at risk of becoming obsolete. This volume is more than six times the total office stock in Central London. Western European cities face a greater challenge, with nearly 80% of the stock at risk in seven major cities, including Amsterdam, Barcelona, London, Madrid, Milan, Paris, and Stockholm. The report emphasizes that the older stock profiles in these regions contribute significantly to this risk.

Post-pandemic trends, geopolitical events, and economic pressures have led to rising vacancy rates in European office markets, which reached an average of 10.5% by mid-2024. In contrast, North American and APAC markets have seen more significant increases. The relatively lower work-from-home rates in Europe contribute to this stability, with the average work-from-home rate being less than one day per week in many European countries.

The report highlights the critical role that location plays in vacancy risks. Vacancy rates are substantially higher in non-central locations compared to central business districts (CBDs), with a gap of approximately 550 basis points. This trend underscores the need for asset repositioning in less desirable areas to mitigate risks of obsolescence.

Environmental sustainability is a pressing concern, with the real estate sector responsible for roughly 40% of global greenhouse gas emissions. Occupiers are increasingly demanding higher building standards that meet energy efficiency and carbon emission targets. The report discusses the implications of the Energy Performance of Buildings Directive, which aims to enhance building quality across Europe.

The analysis suggests that landlords must consider strategic asset repositioning or repurposing to address the risks of obsolescence. This may involve converting older office buildings into mixed-use developments or alternative uses such as residential or healthcare facilities. The report indicates that the value differential between office space and other uses has narrowed, providing incentives for repurposing.

Lower office values relative to other uses have driven the need for repurposing assets. In many European cities, the variance between office values and other property types has decreased from 24% to just 11% since 2019. This shift is crucial for landlords as they navigate the complexities of market dynamics and regulatory changes.

Looking ahead, the report emphasizes the importance of clear, flexible, and efficient planning policies. These policies will be critical for developers aiming to adapt to the changing landscape of the office market. The authors urge stakeholders to engage in thorough market reviews and consider the implications of emerging trends on asset management strategies.

In conclusion, as European cities face the dual challenges of evolving occupational demands and stringent environmental regulations, understanding the risks and opportunities associated with office obsolescence will be essential for stakeholders in the real estate sector. The findings underscore the need for proactive strategies to ensure that office spaces remain relevant and sustainable in the coming years.