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The office market: efficient or luxurious?

Stefan Wundrak

Stefan Wundrak, Head of European Research, discusses the real estate office market across different European cities.

In retail, we are used to thinking about rental values in terms of affordability for retailers. We analyse if a retailer can afford to pay a rental tone given its turnover and overall margin in the space. No one, however, seems to ask that question when analysing the office market. In offices, we think about the willingness of tenants to pay a rental level rather than their ability to do so.

Office rental tones are firmly rooted in the overall price level of a city; statistical models fail to fully explain why office rents in some (European) cities are structurally higher than in others. For example, Italian office rents per sq m are inexplicably expensive from a German perspective.

IPD data published last week shows that space usage varies widely across countries and cities. In Vienna, Frankfurt and Milan, companies occupy significantly more space per workstation than in London or Budapest. IPD classifies office usage in Germany as “inefficient”, perhaps due to outdated office setups. However, “inefficient Germans” doesn’t quite fit the stereotype and there is another way of interpreting these numbers: maybe Italian, Austrian and German-based firms are just more generous with their office workers, not cramming as many people in a given space. The “luxury” argument would fit the Italian cliché, but it does not hold once you have seen the low quality of the average Italian office accommodation.

It is also not clear what drives British and Hungarian companies to be so economic with office space. In London, high rents may be one reason, but high London rents are overcompensated by high productivity (on a company level, not personal productivity!) and zealously economic usage of space. In Budapest, one suspects tight space per workstation may be driven by a lower prevalence of space “demanding” employees in “high value” services, such as, law firms.

We cannot be sure if a low rent per workstation as a percentage of GDP in London, Copenhagen and Brussels are a sign of smart efficiency or joyless stinginess. And as these differences have persisted over time, we also have to refrain from forecasting rental growth based on these differences.


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Stefan Wundrak

Stefan Wundrak

Head of European Research

Stefan's biography