Almost 70% of landlords and tenants in the office market believe that the COVID-19 epidemics will continue to affect their business throughout this whole year, with first signs of recovery being expected to start with 2021, according to a study conducted by Colliers International among 60 landlords and more than 100 tenants.
While most tenants expect their workforce to return to the office before autumn, office market representatives worry that the impact of the epidemiological crisis on the real estate market will be at least similar to the financial crisis from 2009. Colliers International’s study is part of a broader analysis of the overall real estate market outlook, based on relevant insights from all market segments, which will be presented in the next period.
92% of tenants will return to their offices in the summer of 2020 at the latest
25% of tenants expect to resume activity within the office as early as May, while 67% believe this will happen over the summer, according to Colliers International’s study among tenants, of which close to 30% represent companies with more than 1,000 employees, which are relevant in the current office environment. About 55% of them are already dealing with negative or somewhat negative impact over their business due to COVID-19, with those active in medical, retail and shared offices being the most affected. Only 16% say that their business has not been affected so far and 6% are even positively impacted to some extent.
“Most are affected by reduced revenues or by the fact that they had to postpone or even cancel their expansion plans and some even struggle with disruption in their supply chain. While 84% of tenants say they are now working from home, getting back to the office as soon as possible represents the first step to recovery. Considering the current levels of uncertainty, things might change at any point. A positive evolution can be feasible, provided that the measures taken by the governments and central banks prove to be much more effective than expected”, says Sebastian Dragomir, Partner and Head of Office Advisory at Colliers International.
While a quarter of tenants don’t have a clear picture of how the COVID-19 outbreak will affect them in terms of employees, 41% expect to maintain their workforce size and about 17% even estimate increases this year. However, 70% of tenants that participated in Colliers International’s study expect a decreasing trend in rents as a consequence of the COVID-19 outbreak, out of which 23% expect a major correction. Another 20% do not see the rents changing at all, while none of the interviewed tenants expects an increase in rents going forward.
45% of landlords expect rents to remain stable
Most landlords are betting on a flat market with stable rents, but 30% are rather expecting they will need to decrease rents by the end of this year or in the first three months of 2021 the latest, according to Colliers International’s study among landlords with office space portfolios in Bucharest and regional cities, also. Better rent deals could help prevent a vacancy rate increase among tenants that could be facing difficulties in the current context. More than half of landlords say they are already impacted by the effects of the COVID-19 epidemics, and 39% expect vacancy rates to increase to some extent in the next 12 to 15 months, while 35% are more optimistic and count on stable occupancy rates.
The office market is expected to recover starting 2021
Some office market decision-makers worry that the impact of the epidemiological crisis on the real estate market could be at least similar or even bigger compared to the effects of the financial crisis from over a decade ago. The concern is visible among more tenants (75%) than landlords (38%), while the rest are more optimistic and expect a lighter effect.
“A recovery of the office market is foreseen starting with 2021, which shows that the market is expecting a V-shaped crisis. This means things will get worse in the next period but will start getting better in the next 9 months based on the high level of trust in the local market’s evolution. More accurately, 44% of landlords and 52% of tenants believe they will return to business levels from before the COVID-19 epidemics starting with 2021. More than a third of decision-makers from both sides are optimistic that a recovery could happen even starting with the second half of this year, but it all depends on how the outbreaks evolve and when tenants will be able to return to the office”, concludes Sebastian Dragomir, Partner and Head of Office Advisory at Colliers International.
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