Demand for office property in Europe set to decline in next 20 years
A declining workforce population means that Europe is set to see a drop in demand for office space over the next few decades, according to the latest research from Colliers International.
The findings of the report reveal Europe is witnessing a shrinking working population, creating a base case scenario of a 10% reduction in demand for commercial office and industrial space across Europe over the next 20 years. This will be followed by a further 10% diminution over the subsequent 20 years to 2050.
Today, the baby boomers dominate the workforce at almost 45% of the working population and their demands have been most adhered to when planning office environments to date, resulting in a high proportion of cellular office use as opposed to full open plan.
But by 2020 the influence of the baby boomers will have waned as it is effectively halved and by 2030 baby boomers will be virtually nonexistent within the workforce. This will leave Generation Y and Z to dominate the workforce with greater involvement in decisions regarding the format and design of the workplace, says the report.
‘We can expect a major change in the dominant style, motivations and methods of working and commuting within our modern workforce over the next 20 years,’ said Guy Douetil, managing director, Corporate Solutions, EMEA, at Colliers.
‘Owning and creating the right type of space flexible enough to suit these changing styles and demand will become more critical for developers and owners to take into account,’ he added.
Office buildings typically have a 20 year life cycle and long term investments are funded over a 20 year term. The report points out that for banks and investors it will be vital to ensure that their office buildings are future proofed as much as possible to meet these changing demand patterns. Failure to do so could mean higher vacancy, increased obsolescence resulting in a requirement for higher levels of capital expenditure to upgrade stock and lower rents, resulting in a weaker exit yield and reduced returns.
While these European wide trends affect everyone, the national and local impact on employment and real estate markets can and will differ strikingly, it also says. On the face of it, eastern, southern and western European office markets will feel the brunt of a reduction in the workforce, and thus the demand for office space, while northern Europe will maintain marginal growth. However, when migration forecasts are taken into consideration based on economic opportunity, eastern European countries are experiencing the positive impact of outsourcing on jobs growth.
‘We project that the outsourcing workforce in Eastern Europe could grow to over half a million by 2020. This equates to 5.5 to six million square metres of office space, enough to fill the combined modern office stock of Warsaw and Prague,’ said Damian Harrington, regional director for research and forecasting.