Workers do not want to work only from the office, hybrid work is gaining importance and this is putting the commercial real estate sector under pressure, especially the office sector, writes eToro analyst for Romania, Bogdan Maioreanu.
The Fed paused the rates but is planning some new increases to contain price pressures. The ECB continues to increase the rates. This situation is putting pressure on companies to reduce costs, including the ones with the offices.
A comparative study across 27 countries concludes that the employers in those countries wanted employees to be back to the office for more days a week than employees would prefer. Also studies revealed that after the pandemic companies moved to a hybrid model requiring employees to work 2-3 days per week from the office. The availability of this opportunity varies with the specific industry the company is in. Technology is more flexible while restaurants, food services and manufacturing requires full presence at the office. Also, small companies, below 500 employees are more flexible when it comes to office presence than the bigger ones, benefiting from lower expenses with the office space and utilities.
This situation led to low occupancy of the office space meaning that less workers are populating the rented space. In Europe the occupancy rates in the offices started to climb from 43% to 55% but are below the pre-pandemic average of 70%. Workers show a preference to come to office during the middle of the week, with average office occupancy rates highest on Tuesdays (63%), Wednesdays (62%) and Thursdays (62%).
In Europe the office vacancy rates are still low but increased from 7.1% to 7.6% over the past twelve months as occupiers held off signing new leases. In Bucharest the vacancy rate remained at 15%, the same level as the previous quarter and as that in Q1 2022. The last time the vacancy rate was recorded at a level higher than this was in 2014. After a strong year in 2022, the Bucharest office market saw limited leasing activity in the first quarter of 2023, with only 46,000 sqm of transactions recorded. This is the lowest level of quarterly take-up in two years and represents a 35% decrease year-over-year from the volume seen in Q1 2022.
But in other cities we are seeing increases in vacancies: Dublin (+350 bps to 14.0%), Paris – La Défense (+270 bps to 15.7%), and Budapest (+240 bps to 12.2%). The negative office sentiment is partly based on high levels of vacancies, though when compared to the US, Europe appears more shielded as supply of new space is limited.
In the first quarter of 2023, average office vacancy rates in the US market stood at 18.6%, which was 5.9% higher than the last quarter of 2019, according to the latest projections from Cushman & Wakefield, a commercial real estate services company. This is creating unease in the US banking sector. In the US 135 regional banks have a 16.5% exposure, 829 community banks have another 24.3% and 2965 banks have another 18.3% from the total banking exposure to CRE.
This whole situation translated into a decrease in value of both the Dow Jones US Banks Index that lost 11.2% this year and the Vanguard Real Estate Index ETF (VNQ) that lost over 7% in the past 12 months. Also the biggest US office REITS, Alexandria Real Estate Equities, Inc.(ARE) lost more than 21% and Boston Properties (BXP) lost almost 40% of their value this year.
Romania ranks third best country for a remote workaction, survey finds
