• Real Estate Trends: Office Sector Dynamics

    July, 2023

In the wake of the Covid-19 crisis and technological progress, a new way of working has emerged. As investors and occupiers demand increases for best-in class, premium central locations and grade A office space, the dynamics of investment in the sector have changed. The new trends are equally focused on consolidated core and core+ areas and are committed to ESG efforts.

Before the pandemic, the main investment market in Spain was the residential market, followed by the office market, which together accounted for almost 50% of the country’s real estate investment. This trend changed as, with mobility restrictions during Covid-19, the rate of tourism fell sharply and most companies started to implement teleworking. This meant that residential or logistics markets were favoured by this situation and began to gain weight. This also led to the rise of a new alternative type of investments, data centres, for instance.

This situation has caused companies to focus their office space utilization in a different way. New trends in demand highlight the fact that companies are prioritizing quality over quantity in terms of space, as the office emerges as a place that must encourage employees to spend more time in it. Hence, the rise in demand for ‘flexible offices’ and the implementation of areas that encourage employee interactions and co-working.

Technology has become indispensable for analysing performance and enhancing efficiency in the workplace. With these new trends of ‘flexible offices’, companies are demanding more quality green-certified office space in the more central and consolidated areas of cities, growing it high levels of occupancy and rising rents, while in the peripheral areas of cities the demand for office space has fallen after the Covid 19 crisis.

The consolidation of teleworking not only has consequences for the office sector, but it also has impacted the residential market, as people look for larger spaces to accommodate their homes with a workspace similar to what they have in the office.

Although investment has fallen 34% compared to H1 2022, there are signs of improvement compared to post pandemic years. A total of €530 million were invested in the office sector during H1 2023, although this number is still far from pre-pandemic levels, it is becoming clear that new office trends are gaining importance among investors.

In the coming years, investment trends are expected to continue evolving, with less demand for traditional office space and more demand for flexible offices that encourage interaction and communication amongst workers with more interactive spaces where technology also takes on a transcendental role.