Spotlight: European Office Outlook

A vaccine breakthrough will help tenants plan their occupational decision-making

Vaccine news at last!

Europe’s major cities remained in the midst of a second lockdown, further denting business confidence as the economic recovery shifts from a ‘V’ shape to the previous downside scenario of a ‘W’. Focus Economics latest November 2020 Euro Area GDP growth forecasts indicate a slump to -7.9% YoY during 2020, with a 5.3% YoY recovery in 2021.

An extension of furlough schemes to spring 2021 will be welcome news for employers, as 2020 unemployment rates are on course to reach only 8.4%, before peaking at 9.3% in 2021. Of course, this will come at a cost, with average eurozone public debt rates rising from 84% in 2019 to 102.4% by end 2020. Once public debt exceeds circa 100% of GDP, debt repayment levels begin to show signs of dragging on long-term economic growth, although public debt is expected to fall towards the 2023/24 period as taxes are raised in order to pay for furlough measures.

Deloitte’s Autumn 2020 European CFO survey illustrates that hiring intensions have improved since Spring 2020 and that the UK’s CFO sentiment dampens the European average. We anticipate that more Brexit clarity by end 2020 will gradually improve UK sentiment.

Apple’s latest mobility data points to falling public transport usage across Europe’s major cities, comparable with levels recorded in early June, led by Paris and London (see chart, below). The second implementation of lockdown measures will further delay occupational decision-making throughout end-2020 and into early 2021 as many occupiers opt to extend their working from home policies. Although it is becoming evident that the second lockdown measures are generally less constrained that the first phase, with schools and universities remaining open in many instances.

However, employer confidence will be largely boosted by Pfizer’s announcement of a vaccine which can be 90% effective in preventing people catching the virus, as well as Moderna and AstraZeneca's vaccines, although there are still many phases of testing before this can be distributed. Several of the major office-focussed REITs observed a marked rebound following the news and we expect more clarity to come for occupiers to be able to draw out timeframes for their next occupational moves. Further announcements are anticipated during Q4 2020 – Q1 2021 from major European pharmaceutical companies.

Falling productivity

Employer concerns are emerging regarding the recent drop off in labour productivity. October data from the Office of National Statistics (ONS) indicates that of the employers who have increased homeworking since the virus outbreak, 25% reported that productivity had fallen, whereas only 12% said output has increased.

Employers are also paying particular attention to the impact that working from home is having on employees’ mental health as we edge into the winter period. For example, between 28 October to 1 November, 59% of UK workers aged 16–29 reported that they are feeling ‘lonely’, compared with 35% of workers aged 30–59, according to the ONS. The workplace will remain a hub for creativity and wellbeing as we emerge from the pandemic.

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