Increased remote working as the workforce gradually returns to the office poses a threat to office demand. Yet, the major Nordic markets will escape relatively unscathed.
Thousands of office square metres across the major Nordic cities could become redundant if various speculations about increased remote working come true. Will it happen? Perhaps, but we argue that it is rather unlikely: hybrid work patterns were already common across the Nordics pre-pandemic, and although remote working is predicted to increase, the shift will not be seismic.
That said, we do expect a small to moderate decrease in time spent at the office across the Nordics, up to 12-13 percent at most. This will not convert into reduced office demand 1:1 though, primarily due to peak loading challenges in the mid-week, but also due to an expected de-densification of offices post-pandemic.
The logic that concludes that employees will prefer working remotely on Mondays and/or Fridays and at the office during the midweek is supported by significant anecdotal and some survey evidence, and is not controversial. Based on the global experiences from CBRE’s market leading Workplace division, we find that, all else equal, tenants are able to convert between 45 and 70 percent of the reduction in time spent at the office to a reduced space footprint, depending on several factors.
However, as more and more tenants move away from traditional private office space and increase the amount of collaborative spaces – a trend that began long before covid – office demand increases. We see clear signs of this trend accelerating further, as more and more employers are becoming increasingly conscious of that the role of the office first and foremost will be a place for collaboration, building company/team culture, et cetera. This effect is estimated to increase office demand by 5-10 percent.
Combining these two opposing forces, CBRE predicts that 40-50 percent of the reduction in time spent of the office can be converted into reduced footprint in the Nordics. In the markets where we expect a reduction in office time of 10 percent and more, this actually is quite significant. In Oslo for example, that could lead to office vacancy almost doubling, if this happened overnight.
The key factor left out so far however, is timing. Existing leases puts restrictions on tenants that are difficult (expensive) to get out of, in many cases for several years. There will also be a host of decision processes concerning workplace design and strategy that will contribute with significant time lags. In the meantime, over the next couple of years as the world comes out of the pandemic, hundreds and thousands of new jobs will be created, softening the short-term market blowback. Over the medium-term, the negative impulse from increased remote working evaporates as the office market will have readjusted.
For the Nordics we generally expect that office vacancy rates will peak this year, and starting to normalise from 2022, reaching pre-pandemic levels at various times between late-2022 and 2024.