Newsletter_Q2_2018_UK

Newsletter Q2 2018

If the estimated change exceeds the actual change, the change in actual office vacancies is smaller than it should have been, based on the increase in employment and the resulting office demand. To allow for the fact that supply, all other things being equal, is expected to adjust to demand, albeit with a lag due to the time perspective of building schemes, we have in our estimate factored in the hidden demand accumulated in the period. Among other things, the hidden demand indicates that in today’s market a large number of businesses are on the verge of outgrowing existing office premises, but unable to find premises matching their requirements in terms of size, efficiency and loca- tion. Paradigm shift in office use In recent years, however, we have also seen a slight paradigm shift in regard to office use and the layout chosen by businesses. Increased focus on efficiency and flexibility has served to drive down the area requirement per employee – which helps to reduce the hidden demand. This trend is clearly confirmed by our market observations and ongoing dialogue with both landlords and tenants, but it does not

suffice to fully account for the estimated hidden demand.

In addition, the aforesaid calculation does not take into account the number of businesses currently occupying office leases that may well match in terms of size but are functionally obsolete in terms of flexibility and efficiency. This demand may also be classified as hidden, but it is not measurable to the same extent as the demand driven by and estimated on the basis of increases in employment levels. The short supply of up-to-date office buildings is gradually translating into uptrending rent levels. Copenhagen is therefore already seeing the first examples of new office lets at rent levels excee- ding DKK 2,000 per sqm p.a., excluding taxes and operating costs. This contrasts starkly with recent years’ flat trend in office rental prices in and around Copenhagen – a trend that has also served to put a dampener on the market for speculative building. As at Q1 2018, the office vacancy rate in Copen- hagen and environs stood at 5.7% and 9.1%, respecti- vely, marking a 7-year low.

Decentralised Copenhagen locations characterised by relatively low share of modern o ce buildings

Copenhagen

Copenhagen environs

Before 1960, 51%

Before 1960, 11%

1960-1980, 16%

1960-1980, 41%

1980-2000, 12%

1980-2000, 31%

After 2000, 21%

After 2000, 17%

Note: Breakdown of current building stock used for o ce, trade, storage, public-sector administrative purposes, etc., by construction year. The high proportion of Copenhagen buildings pre-dating 1960 is attributable to the great number of o ces laid out in the historical building stock, which continues to attract strong demand thanks to its central location. As the above data include also other uses than o ce, they may only serve as approximation. Source: Statistics Denmark

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