“The office sector and commercial real estate, in general, are not immune to the effects of globalization and technological innovation,” says Rose.
Office fundamentals across 64 major markets in the Americas and Europe remain solid, with nearly two-thirds of the metro areas seeing year over year vacancy declines, according to Avison Young’s midyear report on the sector. However, these markets are also feeling the effects of disruptive trends.
“The office sector and commercial real estate, in general, are not immune to the effects of globalization and technological innovation,” says Mark E. Rose, chair and CEO of Avison Young. “The world is transitioning into a more distributed, automated and digital economy, which impacts how occupiers conduct business and think about their workplaces, and this transition may have profound implications on the role and intrinsic value of property. In turn, owners and developers are finding ways to adapt and provide flexible work environments that meet these changing requirements.”
And although there are concerns that rapid technological advances could diminish the need for physical real estate, Rose points out, “historical evidence suggests that technology is just as likely to create new jobs as to displace them. For example, the likes of Amazon and WeWork are among the occupiers that feature most frequently in our report’s survey of the largest lease transactions across Avison Young markets.”
For the US in particular, the office market is being shaped by a tenant preference for transit-oriented development and the growth of co-working and flexible-office-space operators. Over the past 12 months, says Earl Webb, AY’s president, US operations, “the US economy continued to expand with job growth, dwindling unemployment averages and the stock market reaching record highs. The office sector’s performance reflects that growth even while there is little political clarity, and predictions for the rest of the year remain mixed.”
Over the course of 2017, Webb continues, “we saw co-working and flexible spaces gain market share, and we are tracking their impact on office leasing conditions for owners and occupiers. Landlords are responding to these trends by retrofitting common areas to include tenant amenities and social-gathering spaces.”