COVID-19 is disrupting the economy, accelerating shifts and creating structural changes that will persist for years. Several forces are at play—from office-using job losses, to higher vacancy and downward pressure on rental rates, to an increase in the share of employees who will now work from home either permanently or more regularly.
According to a new forecast from Cushman & Wakefield, global office vacancies will not return to their pre-Covid peak levels until 2025 and, in all, a net 215 million square feet of office vacancy will have been lost due to the pandemic, according to the outlook from one of the largest real estate services firms in the world. Between Q2 2020, when Covid-19 hit the U.S., and Q3 2021, the net negative office square feet damage will reach 95 million square feet, roughly 10 million square feet more than the financial crisis trough.
The situation will be the worst in the West. During the financial crisis, Canada, Europe and the U.S. recorded a combined loss of 120.5 million of square feet occupancy from peak-to-trough. Including Q2 2020, that will reach over 200 million square feet of “negative absorption” peak-to-trough in the Covid recession, according to Cushman & Wakefield’s analysis.
For the study, Cushman & Wakefield surveyed some of largest companies around the world about the future of the office, and attempted to measure both the cyclical impacts of the Covid recession and structural impacts assuming a higher increase in work from home.
Kevin Thorpe, the firm’s chief economist, said two key findings emerged. First, office leasing fundamentals will be significantly impacted and vacancies reach an all-time high. But the second find is more encouraging: the office real estate market will fully recover, according to Cushman & Wakefield, largely due to employment growth and the ongoing shift in the U.S. economy’s concentration in certain types of professional jobs.
In all, the real estate firm estimates that 82% of the damage will be related to cyclical factors: permanent office job losses and the rise of coworking, while 18% is related to structural factors: primarily assumptions about permanent remote workers and hybrid workers — those who work remotely some of the time.
Work from home will double, and hybrid workers will increase. The study estimates that the share of people working permanently from home in the U.S. and Europe will increase from roughly 5-6% pre-Covid-19 to between 10% and 11% post-Covid, while the share of hybrid — also referred to as agile workers — will increase from between 32% to 36% to just under half of all workers.