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Michael Voigtländer IW-Report No. 28 18. June 2020 A Perfect Storm for European Office Markets?: Potential Price Effects of the Covid-19 Pandemic

The Covid-19 pandemic is not only endangering the health of people worldwide, but also causes an economic recession. Given past experiences, office markets, specifically the prime market, reacts very strongly to economic downswings. This paper attempts to derive a likely scenario for the effects in selected European office markets.

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Potential Price Effects of the Covid-19 Pandemic
Michael Voigtländer IW-Report No. 28 18. June 2020

A Perfect Storm for European Office Markets?: Potential Price Effects of the Covid-19 Pandemic

IW Report

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The Covid-19 pandemic is not only endangering the health of people worldwide, but also causes an economic recession. Given past experiences, office markets, specifically the prime market, reacts very strongly to economic downswings. This paper attempts to derive a likely scenario for the effects in selected European office markets.

As a first step, the impact of the economic downturn on prime rents is estimated based on data provided by PMA (Property Market Analysis). As a result, prime rents could decrease in a range between 5 and 23 percent. In most cases reductions are comparable to past crisis, in some cases reductions outperform former crisis. Yet, given the severity of the crisis, this is not implausible. The crisis will also affect expectations, which in turn affects prices. Reasoned on an analysis of spreads a likely effect on prices is derived. Prices will be reduced by 15 percent to 47 percent. Obviously, the results can be critically reviewed, especially since local factors have not been taken into account. Thus, results for cities can be regarded with cautious. Nonetheless, the broader view clearly indicates that the downturn in the office market looks set to be severe. 

In addition, there is the potential for a perfect storm in the office markets since also structural changes are likely. Specifically, workers will push for more remote work and employers are likely to favour this in order to save costs. Also, digitization offers more potential for saving costs for staff. As a result, office demand could be impaired in long-term perspectives, posing challenges for owners and investors in the office market.

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Potential Price Effects of the Covid-19 Pandemic
Michael Voigtländer IW-Report No. 28 18. June 2020

Michael Voigtländer: A Perfect Storm for European Office Markets? – Potential Price Effects of the Covid-19 Pandemic

IW Report

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