The office occupier "arms-race"
Making sense of the latest trends in property and economics from around the globe
5 minutes to read
Elite offices
An "arms-race" has broken out at the very top of the global office market as tenants coalesce around an under-supplied pool of "uber-luxurious" office buildings, according to the most recent edition of the Economist.
The piece cited New York's One Vanderbilt as one of "a spate of new trophy properties and renovated buildings offering interiors and services akin to those at elite private-members clubs." Tenants have come to terms with the fact that working from home is here to stay, and are downsizing appropriately, the piece said. Less square footage means you can pay more per square foot, and companies are doing just that.
It’s a theme we have discussed for some time, but coverage in a mass-market magazine illustrates the degree to which the theme is solidifying among a wider audience. Law firms in London have epitomised the trend, taking a record 1.5 million square feet of space during 2022, 95% of which was new or comprehensively refurbished. Coaxing employees back to the office is part of the story, but for several years competition for talent in London's legal sector has been particularly fierce. Occupiers view the office as a key factor in securing and holding onto skilled workers.
Developers can now expect to see occupiers seeking quality solutions further ahead of lease events while demonstrating more willingness to pre-commit to those solutions, Lee Elliott noted in December.
Working from home
None of that is to underplay the impact of new workstyles - the genie is firmly out of that bottle. New research from the National Bureau of Economic Research lays out what companies stand to gain. The research isn't yet online, but you can read the Bloomberg write up here.
The large survey of workers across 27 countries over the past two years revealed that working-from-home saved about two hours of travel time per worker, per week. That will likely be cut in half, given employers' plans to bring staff back to the office, the economists said.
Businesses are the biggest beneficiaries. Workers devoted 40% of their saved time toward primary and secondary jobs. About a third went toward leisure activities and 11% went to caregiving.
The prize then is a happier, more productive workforce, but again - as Lee Elliott noted in December - wanting hybrid and delivering effective hybrid are very different things. Microsoft, for example, has labeled the challenge of the moment the “productivity paradox” – where 87% of employees say they are productive in the remote elements of their jobs, but 85% of managers aren’t convinced that their team members are getting enough work done at home. Implemented hybrid workstyles remains a challenge that will come to the fore during 2023 - here's Lee again:
"Bringing order to organisations where people have choice in the where and when of work is a huge challenge and one that might well require levels of investment in technology and support systems that are difficult to secure, or levels of change management that are difficult to sustain against the challenging economic backdrop."
Euroeconomics
Business activity in the eurozone unexpectedly returned to growth during the early months of January 2023, according to the S&P Global Flash Eurozone PMI. That comes after six consecutive months of declines.
“A steadying of the eurozone economy at the start of the year adds to evidence that the region might escape recession," says Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. "The survey suggests that a nadir was reached back in October, since when fears over the energy market in particular have been alleviated by falling prices, helped by the warmer than usual weather and generous government assistance."
The Eurozone has enjoyed a remarkable turnaround in just a few weeks. Business confidence jumped higher to hint at markedly improving prospects for the year ahead, while order books at manufacturers showed reduced rates of contraction. Consumers, too, are feeling more upbeat. The European Commission's official measure of consumer sentiment rose to its highest level in nearly a year, according to figures published on Monday.
Economic outperformance is usually good for housing markets, but the data will embolden the European Central Bank to keep raising interest rates until it's confident that inflation is under control. That annual rate of inflation is back in single digits, but remains well above target.
The UK predicament
The S&P Global / CIPS Flash United Kingdom PMI tells a different story. The data shows a sustained downturn in UK private sector business activity during January, largely due to higher interest rates and poor consumer confidence.
A separate survey from the Recruitment and Employment Confederation this morning shows sentiment among employers is close to its lowest level since the survey began in 2016. Despite the gloomy readings of both output volumes and demand, the S&P survey does show that optimism for the year ahead picked up in January and was the strongest since May 2022 due to hopes of a turnaround in global economic conditions and a further slowdown in cost pressures over the course of 2023."
This morning's Times reports that the OBR has written to the chancellor explaining that it overestimated the prospects for medium-term growth in the economy last year and it intends to revise its forecasts down. The November forecast suggested the economy would shrink by 1.4% this year but pick up next year, averaging 2.6% over the forecast period. That will now be cut by between 0.2% and 0.5%.
Aspen
Prime property in Aspen has been in high demand since the pandemic, resulting in a continued shortage of stock. The number of new listings declined from 173 in Q3 2020 to 75 in Q3 2022, according data from Kate Everett-Allen.
This lack of inventory has pushed transactions down, with 135 sales agreed in the first ten months of 2022, less than half of the 325 sales recorded throughout 2021. The contraction is a further reflection of the wider market readjustments as Colorado’s property sector returns to a more sustainable rate, following strong sales volumes during the pandemic.
Due to the sustained lack of stock, prices remain robust, and off-market sales have increased. More than 62% of Aspen sales were above US$5 million in the first ten months of 2022, up from 39% in 2019, prior to the pandemic.
In other news...
For a recap of the latest UK housing market data, see the latest round up from Chris Druce. For those navigating the mortgage market, see the Mortgage Market in Minutes, from Knight Frank Finance.
Elsewhere - Oxford-Cambridge Arc revived via new British regional partnership (FT).