2013 global workplace trends - knight frank€¦ · global corporate services platform and brokers...

Highlights• Globalcorporationsin2012wereforthemostpartanxioustoavoidunnecessary

expenditure,whichdiscouragedsomefrommovingofficesandencouragedmanyofthosewhodidrelocatetopushhardonrentalnegotiations.

• Subduedeconomicgrowthintheglobaleconomyencouragedmorefirmstochangeofficerequirementstobecomemorespaceefficientinordertoreducecosts.Practicestakenupbyfirmsincludeactivity-basedworkingandreducingdeskspaceperemployee.

• Amovetofewerdesksisbeingaccompaniedbyariseinalternativeworkareaslikebreak-outareas,cafesandquietrooms,ascompanieslookforwaystoattractbeststaffandimproveworkenvironmentwithoutexcessiveexpenditure.

• WithITrequirementsincreasingandfirmsconscioustohavecredibleofficestomeetclientsin,officerelocationislikelytoriseupthecorporateagenda.

2013

Global workplace trends

RESEARCH

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2013 Global workplace trends

Theglobaleconomyhasexperiencedarollercoasterrideinthelastfewyears,andmost

companieshavebeenseekingtoreducecostsandusetheirrealestatemoreefficiently.TothisbackdropIhaveaskedKnightFrankResearch,ourGlobalCorporateServicesplatformandbrokersinthefieldtoexaminethelatesttrendsinglobalpropertymarketsastheywouldimpactmajoroccupiersofbusinessspace.

Inthefirstsectionofthereport,‘Theglobalofficesleaguetable’,weseethegrowingsignificanceofemergingmarketcities,likeBeijing,HongKongandMoscow.Thisremindsusthatdespitethegeneralclimateofbusinessausteritytheworldcontinuestoevolve,andcompaniesrequire

newoutpostsinup-and-comingnations.Interestingly,perenniallocationsintheglobaleconomy–likeLondon,Paris,andFrankfurt–havemaintainedtheirpositionsintheleaguetable,whichshowsfundamentalsinbusinesslocationnevergooutoffashion.Infact,realestateisnowanissuediscussedatthehighestlevelsinmajorcorporations,ashavingtherightcitieswiththerightaddressesontheletterheadisseenasessentialforachievingthecorrectbusinessimage.

Thesecondsection,‘Viewfrommydesk’,examineshowoccupierdemandisperformingaroundtheglobethroughtheeyesofKnightFrank’son-the-spotprofessionals.Thepictureisoneofcompaniesseekingtomaximiseuseoftheirproperty,andavoidunnecessaryexpenditure.Consequently,measuresthatlimitpropertyexpensepunctuatethetext,suchashotdesking,leaserenewals,increaseddensityandsub-leasingsurplusaccommodation.

However,ourstudyalsoshowsthatcompaniesareveryawarethatoptingfortheverycheapestrealestatesolutioncouldbeaself-destructivestrategy.Inordertoattractthebeststaff,companiesneedofficestobeintherightpartoftown,haveadécorand

workingenvironmentthatmakesemployeesfeelvaluedandencouragestafftoworkinacollegiatemanner.Companiesarebalancingdivergentconsiderationsofbuildinganofficepeoplewanttoworkinandwishtotaketheirclientsto,butwithoutexcessiveexpenditure.

Inthefuturetheeconomywillmoveintoanewcycle,andthentheroleofhotdeskingwillbelessaboutcontrollingcostsandmoreaboutexpandinginamannerthatmeansanadditional50workerscanbeaccommodatedbyaddingjust40workstations.Leaserenewalswillbecomelessofanoptionasbuildingsbecomeobsolete,andcompanieslooktoraisetheircorporateprofileswithmorecredibleofficesinabetterpartoftown.Insummary,companiesshouldnotbuildtheirrealestatestrategyaroundtoday’sbusinessenvironment,butwithflexibilitytoadapttofuturebusinessscenarios,includinggrowth.

Ihopeyoufindthisreportinformative,andifyouwishtodiscussanyoftheissuesitraises,feelfreetocontactme.

TonyNicholas

HeadofGlobalCorporateServices,EMEA

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OurglobalofficeleaguetablerevealsthatHongKongtookthenumberonespotin2011fromLondonandretaineditin2012,whileMoscowiscreepingclosertothetopofthetablemovingfromfourthtothirdplaceastheRussiancityovertakesTokyo.Inastartlingleapuptherankings,Beijinghasmovedfrom18thto12thplace,increasingthelikelihoodoftheChinesecapitalenteringthetoptenthisyear.

WhileSingaporeremainedunchangedatsixthplaceyear-on-year,itisworthnotingthatbackin2006thecityranked13th,highlightingthegrowingsignificanceofAsia-Pacificcentres.

London’sWestEndandParisconfirmedtheirpositionsasperenniallocationsintheglobaleconomy,hangingontosecondandfifthplacesrespectively.TheWestEndhasaheftyleadoverMoscowin3rdplacesoisunlikelytobeovertakeninthenextstudy.Indeed,withavacancyrateofjust5.6%weexpectfurther

Knight Frank’s 2012 ranking of global office rents provides further evidence that the pecking order of global business locations is gradually shifting.

rentalgrowthin2013fortheWestEnd’smostexclusivedistricts,MayfairandStJames’s.ThismayhelpclosethegapwithHongKong,althoughwithChinashowingsignsofmovingoutofslowdown,wearealsoforecastingrentalgrowththerein2013.

MunichedgedupthetablewhileFrankfurtremainedunchangedat20th.Withnocityinthetoptenandonlyoneinthetoptwenty,Germanylookslikeacompetitivelypricedlocationcomparedtootherleadingeconomies.Thiscouldbeanimportantconsiderationforglobalcorporations,givenGermanywillprobablyleadtheEuroarea’seconomicrecovery.

NorthAmericancitiesgainedgroundinthe2012rankingwithManhattanjumpingfrom15thto10thplace,andWashingtonDCmovedfrom19thto17th.SanFranciscoalsoclimbedthetable,benefitingfromrising

2012 2011 Market Region Rent (€/sq m/yr) Rent (US$/sq m/yr) Rent (UK£/sq m/yr) Outlook 2013

1 1 HongKong,SARChina Asia-Pacific 1,329.16 1,756.98 1,086.73 52 2 London(WestEnd),UK Europe 1,249.59 1,651.77 1,022.58 53 4 Moscow,Russia Europe 907.80 1,200.00 742.17 64 3 Tokyo,Japan Asia-Pacific 893.66 1,181.31 730.66 45 5 Paris,France Europe 800.00 1,057.20 653.91 46 6 Singapore Asia-Pacific 744.40 984.00 608.59 67 8 London(City),UK Europe 723.45 956.04 592.02 58 9 Geneva,Switzerland Europe 662.39 875.35 541.42 69 7 Perth,Australia Asia-Pacific 604.89 799.60 494.49 510 15 Manhattan,USA NorthAmerica 593.13 784.05 484.91 511 10 Sydney,Australia Asia-Pacific 581.90 769.20 475.76 412 18 Beijing,China Asia-Pacific 571.91 756.00 467.58 513 11 StPetersburg,Russia Europe 537.12 710.00 439.17 514 17 Stockholm,Sweden Europe 522.29 690.20 426.90 415 12 Dubai,UAE MiddleEast 521.08 688.81 426.03 416 16 Milan,Italy Europe 500.00 660.75 408.70 617 19 Washington,D.C.,USA NorthAmerica 462.68 611.61 378.24 518 14 Brisbane,Australia Asia-Pacific 442.10 584.40 361.45 619 25 SanFrancisco,USA NorthAmerica 435.57 575.77 356.11 520 20 Frankfurt,Germany Europe 432.00 570.89 353.12 421 13 Mumbai,India Asia-Pacific 417.59 552.00 341.41 422 23 Shanghai,China Asia-Pacific 399.43 528.00 326.57 623 21 AbuDhabi,UAE MiddleEast 391.33 517.29 319.94 424 24 Munich,Germany Europe 372.00 491.60 304.07 425 22 Hanoi,Vietnam Asia-Pacific 281.42 372.00 230.08 4

The Global Offices League Table

demandfromtechnologycompanies.DespitethecontractionrecordedinQ42012,theUSeconomysawgrowththatcompareswellwithmostotherdevelopednationslastyear.Weexpectthispatternofgradualrecoverytocontinuein2013,andconsequentlythebigUScitiesshouldcontinuetoclimbtherankingsthisyear.

Theoverallpictureonglobalrentsismixed,growthinBeijingandManhattan,littlechangeinLondonandFrankfurt.Globalcorporationsin2012wereforthemostpartanxioustoavoidunnecessaryexpenditure,whichdiscouragedsomefrommovingofficesandpushedmanyofthosewhodidrelocatetopushhardinrentalnegotiations.In2013arecoveringglobaleconomy,constraineddevelopmentactivityinmostmajorcities,plusmorepushfactorfrombuildingobsolescence,shouldresultinmorerelocations.

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view from my deskKnight Frank experts talk to Analyst Simret Samra about the performance of occupier demand in key global markets

CorporationsinEurope,AsiaPacificandNorthAmericaaremostlypursuingmaximumvalueformoneyinregardtotheircommercialpropertytoday,reflectingtheuncertainglobaloutlook.Theworldeconomyisexpectedtoseemodestgrowthin2013withtheIMFpredictingglobalgrowthof3.3%,slightlyupfromthe3.2%itforecastedin2012.However,downsiderisksremainhigh,andcompaniesarepursuingflexiblepropertystrategiestoavoidadditionalexpenditureatatimewhentheoutlookfortheirbusinessesisuncertain.Consolidationofbuildings,alternativeworkpractices,increasingfit-outdensities,andothermeansof‘sweating’propertyassetsaremovinguptheagendaforcorporatetenantsaroundtheworld,asourlatestanalysisofglobalofficemarketsshows.

AccordingtoresearchconductedbyCoreNetGlobal,theworkingenvironmentaccountsforupto25%ofjobsatisfaction.Thiscouldaffectemployeeperformancebyasmuchas5%forindividualsand11%forteams.Achallengeforcompanieswillbe

respondingtoafutureeconomicrecovery,wheninevitablyrentswillincreaseasmodernCBDofficespacebecomeshardertoobtain,justasfirmsthemselveshavereturnedtoexpandingheadcount.Thisislikelytopushalternativeworkpracticesandflexiblefit-outhigherupthecorporateagenda.

EuropeTheEuropeanofficemarketcontinuestobeconstrainedbytheon-goingeconomicrestructuringintheEuroarea,whichisalsoimpactingneighbouringcountries.Uncertaintyremainsandthishastranslatedintoweakbusinessconfidence.Consequentlyfirmsarechoosingtorenewleases,maximisespaceefficiency,andwhereverpossiblesub-letsurplusoffices.However,therearepocketsofgrowthinoccupierdemand,withtechnology,mediaandtelecoms(TMT)firmsexpandinginmostmajorcities,thankstothegrowthofdigitalmedia.Oftenthesefirmsareintroducingradicalchangesinofficefit-outandworkpractices.

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Uncertainty in the Eurozone has translated into weak business confidence. Consequently firms are choosing to renew leases, maximise space efficiency and sub-let surplus offices

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Central LondonIntheCentralLondonleasingmarket,take-upofofficespacewas9.6msqftin2012,downon2011’stotalof10.7msqft.TheCityofficemarketwasabrightspot,withtake-upincreasingto5.8msqftin2012,upfrom5.5msqftin2011.

Thebankingandfinancesector,traditionallythemajordriverofactivityintheCity,wasrelativelysubdued,butthemarketbenefittedfromagrowingclusteroftechnology,mediaandtelecoms(TMT)firmswhichacquired1.2msqftofofficespacein2012,a25%increaseon2011.

TMTfirmshavebeenfocusedonnewtrendydistrictsintheNorthernCityfringe,suchasClerkenwell,FarringdonandShoreditch.Thisisbecausecompaniesarefindingthattorecruitthebesttechies,officeshavetobeinalocationwherestafffeelcomfortablewithdistrictsthatofferayoungandbohemianatmosphere,withcafesandnightlife,provingpopular.ThismatchesrecenttrendsinmanyNorthAmericancities.

Inaddition,firmsaremakingsuretheyprovideemployeeswithaccessto

technologicaltoolstheymayneedformobileworkinoffices,withover85%ofexecutivesexpectingtelecommunicatingtogrowoverthenext10-15years,accordingtoCoreNetGlobalresearch.

TheinsurancesectoralsoplayedanimportantroleintheCitythroughout2012,withactivitytightlyfocusedontheEC3district,whichishometotheLloyd’sofLondoninsurancemarketbuilding.Thereareanumberoffactorsfuellingtake-uplevelsinEC3.First,consolidationintheinsurancesectorhasbenefittedthebiggerplayersandtheyhavetofindlargerofficesfortheirstaff.Secondly,manylargeinsurersmovedintotheircurrentbuildingsintheearly1990sandnowwantmoremodern,highspecificationoffices.Insurershavegenerallybeenincreasingheadcountoflate,andremainkeentorecruit.

AndrewBugg,HeadofWorkplaceConsultancywithintheGCSteam,said:“BusinessesinLondonareusingofficespacemoreefficiently,seeingitasabusinesstoolfromwhichtheyintendtoderiveasgreatareturnaspossible.

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“Thisdoesnotnecessarilymeansimplyincreasingthenumberofpeopleitcanaccommodate,butratherlookingformorecreativesolutionstoensurethatitprovidesthebestworkingenvironmenttosupporttheactivitieswhichareundertakenthereand,indoingso,makethemmoreproductive.Thiswillincreasinglybethecaseasnewgenerationsentertheworkforceandbusinessesneedtoprovideanenvironmentwhichallowsthemtoattractandretainthebesttalent.”

Manyfirmsarenowreducingthenumberofdesksandintroducingalternativeworkspaces,likebreak-outareasandcafes,whichactasimpromptumeetingrooms,casualworkstations,andideagenerationlocations.Theyalsobreakthepsychologicallinkbetweenworkanddesks,allowingcompaniestoraiseproductivitywhileincreasingofficeoccupationdensity.WhileTMTfirmshavebeentrailblazersinthesenewworkpractices,itissteadilybeingadoptedbyawiderrangeofindustries.

IntheWestEnd,take-upfor2012totalled3.4msqft,27%belowthe10-yearlongtermaverage.Turningtoactivityin2013,technologygiantGooglehascompletedthepurchaseofa2.4acresiteatKing’sCrossCentralwhereanew1msqftheadquarterswillbedeveloped.

BradleyBaker,HeadofCentralLondonTenantRepresentation,said:“ThemarketfundamentalsoftheWestEndmarketlookhealthy.Googlehasprovidedanearlyboostto2013take-upfiguresandmoreimportantly,occupiersentimentbycommittingto800,000sqftatKing’sCross.Thenewlocationwilloffermoreflexibilityandmobilitytocurrentemployeesandnewhires,whichwillpleaseemployees.

“Googleisagoodexampleofafirmtryingtodomoretoensurenewemployeesgetanimmediatesenseofitscultureandbrand.Everythingfromthecolourschemetothefurniturereflectstheattitudesandvaluesofthecompany,aspectsthatplayahugeroleinattractingnewtalent.”

FrankfurtFrankfurthadaresilient2012withtake-upreaching513,000sqm,thehighestsince2008.ThelargestofficedealwasAirLiquideKonzernsGlobalE&CSolutionsanditssubsidiaryLurgiGmbH’slettingofapproximately30,000sqmofofficespaceinthecity.However,asmalldipintake-upisexpectedoverthenext12monthstoaround450,000sqm.

Many firms are introducing alternative work spaces, like break-out areas and cafes, which act as impromptu meeting rooms, casual work stations and idea generation locations


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KatrinBeyer,ConsultantforKnightFrank’sFrankfurtofficemarket,said:“Corporatesarealwayslookingforwaystosavecosts,andbusinessesinFrankfurtarenodifferent.Wehavenotseenmuchappetiteamongfirmstorelocatetodecentralisedareastoreducetheirofficecosts.However,wehaveseenmorefirmsalteringtheirofficerequirementstobecomemorespaceefficient.Thisincludesreducingdeskspaceperemployeeandencouragingmoreemployeestoworkfromhome.”

Beyeraddedthattheinsurance,technologyandprofessionalservicesectorswerethemostactivein2012,andareexpectedtocontinuetoperformstronglyin2013.ThisisconsistentwithactivityinothermajorbusinesslocationslikeLondonandNewYork,highlightinggeneraltrendsintheglobaleconomy.GermanyremainsEurope’slargesteconomyandwewouldexpectittoleadtheEuroarea’srecovery,whichwillbenefitpropertyinFrankfurtinthemediumtolong-term.

ParisTake-upintheParisIledeFranceofficemarket(theGreaterParisregion)wasresilientat2.4msqmforfullyear2012.Upto770,000sqmofofficespacewasavailablein2012,withafurther680,000sqminthedevelopmentpipelinefor2013completion.

CyrilRobert,HeadofResearch,Parissaid:“Theheightenedeconomicuncertaintydampeneddemandin2012

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andpromptedmanycompaniestodeferrelocationdecisions.”

Take-upvolumesfor2013areforecasttoseea5to10%fallasoccupiersremainfocusedoncostsavingsanddrivingefficiencygainsinexistingspace.Someoccupiersarealsolikelytotakeadvantageoftenantfavourableconditionsandcouldlooktoeitherextendexistingleasesorupgrade.Leaseeventsandrenegotiationsareexpectedtodominate,beforetheanticipatedeconomicandjobmarketrecoverytranslatesintomoreexpansionarydemandin2014.

MadridSpain’seconomicproblemshavehadadirectknock-oneffectonthecapital’sofficemarket.Take-upinMadridwasdownonanannualbasisasoccupiersremainedreluctanttomoveduringperiodsofuncertainty,preferringtonegotiatetherentfortheircurrentofficespace.Therewerearound327transactionsinMadridlastyear,equatingto249,000sqm.

RentsintheCBDfellslightlyduringthefourthquarterof2012to€25($33)sqm/month,andthereisstillapossibilityofafurthercorrection,drivenbythelackoftransactionsandthehighlevelofsupply.Growthintheofficemarketwilldependonwhethertheeconomyrecovers,whichatpresentappearstobeadistantprospect.

DanielDiaz,CommercialResearchManager,MadridinsistsitsbecomingmorecommonforspacetobetakeninperipheryareasoutsideoftheM-30,whichcirclesthecentraldistrictsofMadridandistheinnermostringofthecity:

“Limitednewofficedevelopmentinthecitycentrehasencouragedsomecompaniestolookinthesurroundingdistrictsforoffices.ThishasdrawnoccupierswithlargespacerequirementstoschemesoutsideoftheCBD.”

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firms are altering office requirements to become space efficient by reducing desk space per employee or encouraging working from home

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Middle East TheMiddleEaststillremainsovershadowedbythepoliticalupheavaltakingplaceinanumberofcountries,whichhasledtoconsiderablecautionovertheoutlookforbusinessandinvestment.However,theUnitedArabEmirateshasregisteredasolideconomicperformancefor2012,buckingnegativeglobaltrendsthatcontinuetohampertherecoveryinEuropeandtheUS.ThelatestfiguresfromtheIMFshoweda4.0%growthfor2012,withnon-oilsectorGDPexpandingby3.3%.TheIMFhasforecastnon-oilsectorstogrowby3.5%in2013.

DubaiDubai’s‘safehaven’statusintheGulfhasledtoanumberofcompaniesexpandingandconsolidatingtheiroperationsintheEmirateoverthelastfewyears.Intheoccupiermarket,therewasasteadyincreaseinofficesupplywith5.9msqmofstockavailablein2012.

EuanKelly,aKnightFrankbrokerbasedinDubai,said:“Manyofthesecompletedprojectsarestalledprojectsfrom2007/2008andmanyhavemultipleownersandarenotfitforlargeinternationaloccupiers,sowedidnotseeasignificantincreaseintake-upin2012.ThemostnotablecompletionwastheStandardCharteredHQonSheikhZayedRoad,whichincreasedonshorerentstoAED175psf($48.00pa).”

Withthecontinuedincreaseinsupply,thecitywidevacancyratecurrentlystandsatapproximately50%whileprimelocationshavevacancyratesoflessthan20%.Theflighttoqualitybyoccupiershascontinuedwithanincreaseinlargecompaniesconsolidatingoperationsintoonelocationinattempttobenefitfromareductioninrentandgoodqualityofficeaccommodation.

Kellyadded:“OnarecenttouroftheStandardCharteredHQtherewasa

noticeableshifttowardsmoreefficientuseofspacewithfirmsencouragingalternatewaysofworking.Inaddition,corporationsinDubaiarecontinuouslylookingatwaystokeeptheirspacesfreshthroughimpactfulupgrades,whetherthatincludesemployeeshavingaccesstotechnologicaltoolstheyneedformobilework,choosingfurniturethatmoveseasilysoemployeescancustomisespacestotheirspecificmeetingneedsorusingroundtablesinmeetingroomstoputeveryoneonequalfootingindiscussions.”

Asia PacificOfficeoccupiermarketsintheAsiaPacificregionremainedchallengedin2012reflectingslowingeconomicgrowth.Corporationsarefacingthedifficulttaskofdeliveringnewcostsavings,whileatthesametimeimplementingmeasuresthatsupportoverallbusinessgrowth.Despiteapoorworldeconomicoutlook,China’seconomy,thesecondlargestintheworld,isshowingsignsofareboundin2013whichshouldprovideamuch-neededboostofconfidencetooccupiersintheAsiaPacificregion.

SingaporeWithlimiteddemandforexpansionspace,activityhasbeendominatedbyrenewalsandrelocationsintheSingaporeofficemarket.Leasingtransactionsweremainlydrivenbysmallerofficetenants,althoughsomelargerofficeoccupiersbeganlookingtodecentralisebusinessoperationstosavecosts.

AlexHill,KnightFrank’sHeadofGlobalCorporateServices,AsiaPacific,said:“Internationallawfirms,energycompaniesandfirmsintheshippingandlogisticsindustriescontinuedtotakeupspacein2012.However,alotofthesefirmsaresmalleroccupiersofspacesotherewashealthydemandforunitsizesof1,000to5,000sqft.”


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Lastyearsawsomemulti-nationalcorporationsshifttheirbackofficeoperationsoutofSingapore’sCentralBusinessDistrictintosuburbanlocations.CreditSuisseacquired315,000sqftatOne@ChangiintheSurburbanEast,whilecommunicationsfirmCiscoSystemsacquired110,000sqftinUEBizhub,locatedintheSurburbanEast.

Newsupplytosupportoccupierdemandfellannuallyfrom1.8mto420,000sqftin2012:“Demandhasbeenlowerassomecompanieswhorequirespacehavealreadyfoundtheirnewaddresses,whileotherswhoaremoreaffectedbyeconomicuncertaintyhavepostponedrelocationorexpansionplans.Consequently,landlordsarewillingtonegotiateleasetermswithlargerexistingtenantstoretainthem.Incentivesofferedincluderefurbishmentplans.Atthesametime,asix-monthrentfreeperiodcouldbeofferedtoprospectivetenants.”

Hong KongUncertaintiesintheoutlookfortheglobalanddomesticeconomiescontinuedtoweighonleasingactivityinHongKong’sGradeAofficemarketin2012.Nettake-upin2012amountedto1.6msqftcomparedwith2.8msqftachievedin2011.Inthelargestleasingtransactionrecordedintheyear,BankofAmericaMerrillLynch(BoAML)

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agreedtoleasesevenfloors,or150,000sqft,inCheungKongCenter.Theleaseonthebank’scurrentoffices,innearbyCitibankPlaza,isnotduetoexpireuntillate2014.Activityinthebroaderleasingmarketremainedsubduedwithdemandbeingdrivenprimarilybycostsavingsandtheredevelopmentofolderofficebuildings.

PaulScroggie,HeadofPortfolioOptimisation,GlobalCorporateServices,AsiaPacific,insistsbusinessesarebecomingmorespace-efficientintheHongKongofficemarket.

“Thewayinwhichcorporationsuseofficespacevariessectortosector.InHongKong,thetrendwe’reseeingintheinsuranceindustryisthatmanycompaniesaredoingtwothings;eitherrelocatingtolowercostregions,orre-thinkingtheirofficedesigntoencouragemoreactivity-basedworkingbyusingdifferenttypesofworkspacestoencouragecollaboration,fasterlearninganddevelopment.Alongsidetraditionalconferences,workstationsandoffices,companiesarecreatingmorespacesforimpromptumeetings,suchassmallgroupingsofchairsorcaféareas,anddedicatingsomeofthesespacestomentoringandprofessionaldevelopment.Makingthesesortsofchangesisagreattacticforcorporationstonotonlyattractnewhiresbutalsoretaintoptalent.”

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Last year saw some multi-national corporations shift back office operations out of CBD into suburban locations

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United StatesTheUSeconomyandofficemarketscontinuedtorecoverin2012,althoughliketheAsiaPacificcorporationsarecautiousonnear-termprospects.Withtheeconomyunlikelytoprovidesignificantupliftinthefirsthalfoftheyear,companieswillviewcostcontrolasanotherwaytoboostearnings,whichoftenencouragesrenewalofofficeleasesinpreferencetoarelocation.However,theUSappearstobeleadingtheglobalrecoveryandcorporatestherearegenerallyfeelingmoreoptimisticin2013,nowthe‘FiscalCliff’compromisehasbeenagreed,withrisingstockmarketsdemonstratingtherecentupliftinbusinessconfidence.

New YorkTheuncertaineconomydeterredmanylargercompaniesfrominitiatingsearchesforofficesinNewYorkin2012.Ofthe10biggestManhattanleasesin2012,ninewererenewals,whichillustratedtheconservativetackcompaniesaretakingtokeepspendingdown.Majordealsin2012includedViacom’s1.6msqftrenewalandexpansion,whileMorganStanleyrenewed1.2msqftat1NewYorkPlazaintheFinancialDistrict.OtherlargerenewalsincludedSwissBankUBS

signingfor900,000sqftat1285SixthAvenueandCitibanktaking475,000sqftat601Lexington,inMidtownNewYork.

Banksandotherfinancialservicefirmssignedsomeof2012’sbiggestManhattanofficeleases.Indeed,fourofthetop10leasesweresignedbybanks,ofwhichthreewererenewals,andtheotherarenewalandexpansion.MichaelIppolito,ChairmanofNewmarkGrubbKnightFrank,GlobalCorporateServices,saidthatdespitefinancialfirmsbeingactiveintheleasingmarket,itdoesn’tmeanfirmswillexpandtheirpresencein2013:“Theymightbeexpandingatonebuilding,buttheyareconsolidatingfromotherlocations,”hesaid.

Theonlyrelocationleaseonthetop10listwastheU.S.GeneralServiceAdministration’s270,000sqftleaseat1WorldTradeCenter,inNewYork’sdowntownFinancialDistrict.Inaddition,someofthemostactivetenantstakingspace,thoseinthetechnologyandmediasectors,optedforlessspacepersqftperemployeein2012–andcompaniesinotherindustriesmaysoonfollowsuit,saidIppolito.

“Sincetheonsetoftherecession,businesseshavebeenlookingattheirfloorplatesandexaminingwhethertheycanfunctionwith20to30%lessspace.Onewayfirmsaregettingmorespaceefficientisbytaking


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fewersqftperemployee,andencouragingdesk-sharing.”

AccordingtoasurveyconductedbyCoreNetGlobal,theamountofofficespaceperworkerhasdeclinedfrom225sqftpriortotherecessionto176sqftin2012.Itisestimatedthatitcoulddecreasetoaslowas151sqftby2017.However,thisisstillhigherthanEuropeanrequirementswheredevelopersbuildforoccupationaldensities

of140sqftperworkspace.Thishasreducedfromaguideof183sqftin2005.

IppolitosaidtheofficemarketinNewYorklookssetforastableH12013withactivitylargelydrivenbyleaseexpiries,followedbyastrongersecondhalfassteadyjobgrowthultimatelyleadstonetnewdemandandpositiveabsorption:“Thetechnology,energyandeducationsectorsarelikelytodrivethemarketthisyear,andwherewe’relikelytoseefirmsexpanding.”

Activityintheofficeleasingmarkethasbeendominatedbyrenewalsandrelocationsoflate,atrendwhichislikelytocontinuefortheremainderoftheyear.

Aclimateoffrugalitybroughtaboutbytheeconomicslowdownmeansfirmsarealteringtheirofficerequirementstobecomespaceefficientinordertoreducecosts.Practiceswhichhavebecomemorecommoninofficesaroundtheworldincludeactivity-basedworkingandreducingdeskspaceperemployee.However,amovetofewerdesksisbeingaccompaniedbyariseinalternativeworkareaslikebreak-outareas,cafesandquietrooms.

The futureGlobal companies are cautiously optimistic about 2013 encouraged by signs of recovery in the US and China, and stabilisation in the Euro area.

While2013isexpectedtobeanothercautiousyearforthecommercialpropertymarket,confidenceamongfirmshasimprovedslightlyfrom2012,whichhasboughtsomerespiteandstabilisationinfinancialmarkets.However,lookingbeyond2013,withsomanyfirmsoptingtorenewleasesratherthanrelocateinrecentyears,officeobsolescencewillbecomeanincreasingissueformanyfirmsinfutureyears.WithITrequirementsincreasingandfirmsconscioustohavecredibleofficesinwhichtomeetclientsin,relocationwillrisebackupthecorporateagendaagain.

Businesses are looking at their floor plates and examining whether they can function with 20 to 30% less space

RESEARCH

KnightFrankResearchprovidesstrategicadvice,consultancyservicesandforecastingtoawiderangeofclientsworldwideincludingdevelopers,investors,fundingorganisations,corporateinstitutionsandthepublicsector.Allourclientsrecognisetheneedforexpertindependentadvicecustomisedtotheirspecificneeds.

KnightFrankResearchReportsarealsoavailableatKnightFrank.com

OperatingthroughthreecentresofexcellenceinNewYork,LondonandSingapore,theGlobalCorporateServicesteamworkonbotharegionalandgloballevel.Ourapproachalignspropertystrategieswithourclients’businessandfinancialobjectives,withthegoalofreducingoccupancycosts,increasingefficiencyandmaximisingassetvalue.

AmericasUSACanadaCaribbean

AustralasiaAustraliaNewZealand

EuropeUKBelgiumCzechRepublicFranceGermanyIrelandItalyMonacoPolandPortugalRomaniaRussiaSpainTheNetherlandsUkraine

AfricaBotswanaKenyaMalawiNigeriaSouthAfricaTanzaniaUgandaZambiaZimbabwe

Asia CambodiaChinaHongKongIndiaIndonesiaMacauMalaysiaSingaporeSouthKoreaThailandVietnam

The Gulf BahrainQatarUAE

Global Corporate Services (EMEA)

Tony NicholasHeadofGlobalCorporateServices+442078611179tony.nicholas@knightfrank.com

Dan Robinson,[email protected]

Lyndsey Ellison, [email protected]

Sisi Lagrem, [email protected]

Arthur Zacharias, Associate [email protected]

Andrew BuggHeadofWorkplaceConsultancywithinGCSteam+442078611580andrew.bugg@knightfrank.com

Global Corporate Services (Asia Pacific)

Alex HillHeadofGlobalCorporateServices+6562287360alex.hill@asia.knightfrank.com

Ross Criddle [email protected]

Nicholas HoltResearchDirector+6562287313nicholas.holt@asia.knightfrank.com

Global Corporate Services (New York)

Michael IppolitoChairmanofGlobalCorporateServices+12123722048mippolito@newmarkkf.com

Joey Vlasto, [email protected]

Richard Sexton, Partner [email protected]

Robert Sammons HeadofResearch,[email protected]

Commercial Research

James Roberts, PartnerHeadofCommercialResearch+442078611239james.roberts@knightfrank.com

Simret Samra,Research [email protected]

Matthew Colbourne, AssociateInternationalResearch+442078611238matthew.colbourne@knightfrank.com

© Knight Frank LLP 2013

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