Rent new office space? Companies would rather wait.
As a result of the lockdown, Switzerland has seen a dramatic trend towards working from home over the last year. This fact is reflected in the demand for office space. Companies would rather wait and see how the situation develops before renting new offices. What does this mean for the office market? Credit Suisse's 2021 real estate study provides the answer.
Office market suffering from lockdowns and working from home
The coronavirus crisis forced many Swiss employees to work from home during the first lockdown. As a result, a great deal of office space stands empty for the time being. Even now, nearly a year later, Switzerland is largely working from home. This is the result of various factors, including the Federal Council's introduction of mandatory working from home as part of a more recent partial lockdown. According to the Credit Suisse real estate study for 2021, this development has had a considerable impact on demand for office space.
Demand for office space is experiencing a long-term decline
A pronounced decrease in demand for office space by roughly 700,000 m2 is anticipated for 2020 and 2021. The primary cause for this development is the fact that companies have prioritized minimizing costs rather than growth since the beginning of the crisis. Many companies are waiting to see how working from home will affect their own office space requirements and whether it will allow for long-term savings on office space.
In the medium term, however, the significance of the office is likely to increase once again given that the initially high levels of productivity seen with employees working from home is likely to decrease over time due to a lack of social contact and deficient communication. In consideration of the unique advantages offered by both centralized offices and home offices, blended arrangements are likely to prevail in the future. This is likely to result in a long-term decline in demand for office space by 15% over the next ten years.
Supply rate for office space is high in major cities
On the other hand, the supply rate for office space is remaining high despite good space absorption in recent years. If spaces which had already been available for longer are also taken into consideration, space advertised throughout Switzerland as a whole reached a similar level to 2019 in summer 2020.
In comparison with Switzerland as a whole, Geneva currently stands out the most with a supply rate of 11.5%. The supply rate is also high in the major cities of Lausanne (7.9%) and Basel (7.7%) due to the development of a great deal of new space and the release of existing space. In Zurich (7%) and Bern (5.7%), on the other hand, supply is tight – mainly in the city centers, whereas a significant supply of space awaits tenants on their peripheries.
Points of interest make office spaces in city centers attractive
While the supply of office space in city centers is often scarce, peripheral office markets with a great deal of surplus space must confront the consequences of the coronavirus crisis. In this context, the focus on central locations is contingent on the high density of points of interest (POIs).
When office properties offer good environment quality with a broad range of services in addition to good availability, it is easier for companies to entice their employees back into the office from working from home. As a result, office spaces in locations with few points of interest are often overrepresented in advertising because demand for them is lower.
Office rental is becoming more affordable due to increasing vacancies
Despite a high supply rate and low demand in peripheral office markets, a significant increase in vacant office space still has yet to appear. The effects of a crisis typically have a time-delayed impact on the office market. In Zurich (-23%) and the Canton of Vaud (-19%), for example, vacant space actually decreased in 2020.
Due to the increasing number of building permits, however, the gap between supply and demand for office space is likely to widen further and lead to increasing vacancies and declining rents due to overcapacity. This will cause the disparity between central and peripheral office markets with regard to supply of space, vacancy rates, and rental prices, which is already considerable, to become even more pronounced in the years to come.