Corporate real estate sentiment index Q1 2023
The Q1 2023 Global Corporate Real Estate Sentiment Index points to an encouraging upwards turn in sentiment, but medium term plans still in doubt.
3 minutes to read
The survey suggests that there is much road to run before occupiers have the confidence, mandate or capacity to push on with their medium-term strategic plans, as outlined in the upcoming third edition of (Y)OUR SPACE.
Corporate sentiment index
(Y)OUR SPACE has always aimed to illuminate the overall shape of corporate real estate (CRE) strategies and provide direction and perspective around occupier decision-making over a three-year horizon.
But what was missing was the ability to understand how short-term conditions shape sentiment and the ability to meet those strategic aspirations.
This gap in understanding has been all too apparent in the volatility of the pandemic period, which has seen occupiers on and off the brakes within global real estate markets. The Q1 2023 edition of the Knight Frank Cresa Global Corporate Real Estate Sentiment Index is designed to bridge that gap.
Since its inception, the index has shown a quarter-on-quarter decline in corporate real estate leader sentiment, reflecting the pandemic's operational challenges, the direct impact on traditional workstyles and workplaces, and the simultaneous decline in prospects for global economic growth.
Encouragingly, the index's latest edition has seen an upward movement in overall sentiment, although it remains in negative territory. If sustained, this improvement will allow occupiers to act in ways consistent with their strategic plans and priorities.
As the third edition of (Y)OUR SPACE highlights, for the majority of occupiers, these priorities include:
• Entering into new geographical markets as part of a business transformation agenda
• The subsequent expansion of the physical footprint
• A continued flight to high-quality, amenity-rich office space
• A growing willingness to relocate to secure such quality space and address both functional and physical obsolescence
• A transition towards a future work style centred around - but not restricted to - the office
There is still some road to run before CRE teams can mobilise against these priorities. At the portfolio level, for example, prospects for expanding the physical footprint remain subdued; it has the second-lowest sentiment score of the 12 indicators within the index.
Yet, at the same time, there was an increase in sentiment concerning the potential offshoring of certain functions to new locations (thus potentially extending the footprint) as inflationary cost pressures influence business and CRE thinking.
Office occupancy levels
The Sentiment Index also assesses dynamics at the workplace level. In keeping with the overall survey, these also showed upward momentum as the global return to office progresses slowly and presents CRE teams with new opportunities to intervene in future workplace design, configuration and density.
But, again, there is still some road to run. The suggestion of a return to pre-pandemic occupancy levels continues to draw the weakest sentiment across the entire survey.
Consistently negative views on this issue suggest that the return to office will continue to be slow and steady rather than explosive. It also affirms that the endpoint is likely to be short of pre-Covid levels of occupancy as businesses continue to adopt and adapt new styles of working.
If we have learnt one thing in recent years, it is that the economic and operating environment for business is highly volatile. The Q1 2023 Sentiment Index results present a promising context for more expansive and progressive CRE strategies in the future. But sentiment must be further strengthened before the strategic ambitions highlighted in (Y)OUR SPACE is evident across global office markets.
Read the 3rd edition of (Y)OUR SPACE
The results from our global 2023 survey are out. Read the report here.