The office real estate market has been adrift for nine months, waiting for a miracle, or rather, a vaccine. Office hiring has already fallen above 50% in cities like Madrid, Barcelona, London or Paris. This significant fall, as a result of the current health crisis, has not shown signs of turning around during 2020. Some dare to predict that companies have become accustomed by force majeure to a new way of understanding work or, in other words way, they have realized that work is an action and not a specific place.
The year 2020 started very strong: in 2019 the office market closed with almost 5% growth compared to the previous year. Rents for the first quarter of 2020 grew by 12% year-on-year. The offices located in the best areas had low availability, with cities in Spain with a rate below 1.6%. Business centers and coworking operators were living their golden age, with occupations above 90% and expansion plans at meteoric speed. The investment funds were constantly receiving operations from these young players. Since its arrival in Spain in 2012, the square meters in which this sector operates had multiplied by nine, which already reaches one million, and which in 2019 had a turnover of 88 million euros.
This is how Manuel Fernández de Cañete, CEO and founding partner of «La Fábrica», a business center firm with 4 years of history, already has 4 spaces in Madrid: «The second quarter of 2020 was a real madness in this sector, we did not know where they were coming from. Clients kept terminating contracts. We came from a 2019 that had left us an average occupancy above 90%, we did not believe what was happening. All the restrictions caused by the pandemic complicated the survival of our sector, reducing occupancy to 40%. During said quarter we dedicated ourselves to working fundamentally on adapting the centers to the new normal.: orders for masks, hydroalcoholic gels, thermometers and latex gloves, installation of screens, signage, imposition of a distance of 2 meters in common spaces, etc. And of course, in showing solidarity with the situation and trying to prevent our clients from leaving, making discounts of up to 90% ».
In July, the sector realized that this situation was already a reality, that this virus would stay with us for quite some time. And that’s when coworking space operators began negotiations to lower rental rents with owners. In some cases, facilities and a quick understanding of the situation were found by the landlords, and in other cases, it is still a real odyssey, even reaching the courts. So far, the Government has regulated very little this situation in the office market, since in reality, these measures only affect tenants whose lessors are large holders (RD Law 15/2020, of April 21, on measures complementary urgent to support the economy and employment).
“Back to school in September, for the coworking sector, has not been as sweet as we expected”says Fernández de Cañete. “You could see that people wanted to start hard, but there was still no vaccine, and the wave of outbreaks in Madrid after the summer again slowed the return to the office, although this time to a lesser extent. We started the fall with 60% occupancy. We noticed a recovery with a timid upward trend, and of course we continue to give our entire product and offer a spin, embracing flexibility as our main flag.
2021 is a very hopeful year for the office market, although Morgan Stanley warns of a correction in rents for offices in Europe. This bank foresees a fall in rental prices, due to a very weak demand at the moment and points to a return to normality from 2022. Coworking spaces and business centers are presented as a solution to this dramatic situation. At the beginning of this year, most of these operators have started with an occupancy of 80%, with very greedy expansion plans and with growth expectations of between 50% and 100% for the next 2 years, such as This is the case of La Fábrica, Spaces and Utopicus. This office model is an accurate refuge and the best recipe for all those companies that need to streamline their expenses, reducing their direct costs by up to 60%, among which are rental income, cleaning, security, reception, internet … And is that 80% of companies need to do without 90% of their physical work space, either because they do not use it, or because they do not they can continue to bear these costs.
Facing the office market, flex space operators present themselves once again as a great support and a breath of oxygen. This is explained by Martín Galbete, National Director of Offices at Colliers, a company that foresees a 50% increase in global investment in the real estate sector in 2021. According to the Global Capital Markets 2021 Investor Outlook report, in which more than 300 investors from around the world, a 50% increase in investment activity is forecast in the second half of the year, in which first-rate urban offices remain a priority investment objective. All this points, as Galbete explains, to a widespread renewal of confidence in the office market, as a result of recent vaccine developments and continuous stimuli from the population and the desire to get out of the crisis.