Investors Bullish on European Office Space Demand Recovery

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Global office real estate leasing volumes dropped 31% in the first quarter compared with a year ago, according to real estate broker JLL, although Europe proved more resilient than the United States. The long-term impact of the pandemic on working patterns remains unclear. Some will expand and some will contract, some won't change at all," said James Corl, head of the private real estate group at U.S. investment manager Cohen & Steers (CNS.N). Corl said a rise in hybrid working -- from the office a few days a week and the rest at home -- is being counterbalanced by the need for more office space per person in an age of social distancing. A supply shortage that pre-dates the pandemic is also supporting prices even though companies may need 20-30% less space, investors said. The pandemic has hurt large firms in Europe less than initially expected -- helped by strong government support -- and most have continued to pay rent, analysts and brokers say. Investment transactions dropped sharply due to the pandemic but, where deals have taken place, prices for offices in Europe's central business districts have risen 13% in 2021 from 2020, according to Real Capital Analytics. “A number of overseas investors (are) willing to visit London and quarantine in order to inspect and bid on buildings," real estate broker Savills said. For Britain, the "double storm cloud" of Brexit and COVID-19 is clearing, and investors are bullish on the UK recovery and London." Employees may prefer to be near mainline rail stations as they remain cautious about buses or the metro. In Berlin, Vacancy rates remain very low. Rents rose by around 2% in the first quarter for prime Berlin offices compared with a year ago and by more than 5% in Paris, while London's West End was stable, according to CBRE. In New York's mid-town, with more unoccupied space, rents fell by more than 5%. Investor interest in offices is increasing also, as logistics -- warehouses -- starts to look expensive.