Coworking Revolution forces Traditional Offices into Decline Globally in 2016
Out with the Old, In with the New!
All regions across the globe experienced a slowing of office property sales volumes in the first quarter of 2016 compared with the same period in 2015, new research shows.
It was inevitable that the marked increase in capital markets volatility seen at the beginning of the year would impact transactional volumes, as it had done at the end of 2015, according to the report from international real estate firm JLL.
However, the speed of decline has accelerated since the fourth quarter of 2015 when year on year volumes were 8% lower but while US activity took a breath, sentiment remains positive, the report points out.
Much of the decline in the office sector of commercial real estate has been attributed to the rise of coworking – where freelancers, solopreneurs or corporate employees work autonomously but in collaboration with others.
Coworking has re-defined the workspace and in response to rising demand, there has been a steady increase in supply of collaborative work environments that completely buck the trend of the traditional office model. Coworkers are able to rent facilities as and when they need them, removing the considerable cost of long term leases when small businesses are in the development stage.
This mass exodus towards coworking has had significant impact on sales in the traditional office market, as highlighted in JLL’s report.
Overall in the first three months of 2016, global activity totalled US$133 billion, some 14% lower than a year ago and the weakest start to a year since 2013. Regional volumes in the Americas were down 16% year on year at US$61 billion in the first quarter with the US mirroring this fall-off in activity.
Elsewhere in the region, Canadian volumes were more or less flat but activity in Latin America was exceptionally weak at just US$210 million. It’s interesting to note that Brazil is a pioneer in the coworking sector, offering among the most facilities in the world to its burgeoning freelance economy.
Europe is being affected by politics, with the UK’s future in the European Union still uncertain post-referendum, so the report says that it is perhaps a surprise that European volumes have dropped by just 15% year on year to US$48 billion in the first quarter.
‘The UK and Spain are in the eye of the storm politically at present, and investment activity has reflected this nervousness with volumes down 34% and 28% respectively. French volumes were also down by 24%, whereas Germany performed better with a fall of just 8%. There were other bright spots though, with volumes rising in the Nordics, Benelux and the CEE,’ the report says.
The report also says that in the majority of major office markets, yields have remained stable, but the direction of travel is still downwards with the mean prime office yield across 21 major office markets compressing to 4.8%, down 20 basis points on a year ago. Europe registered yield compression in several markets during the first quarter of 2016 including Stockholm down 25 basis points, Madrid also down 25, Brussels down 10 and Milan down 10.