Rising vacancy levels in Stockholm CBD
As yet it is difficult to conclude what long-term effects the spread of COVID-19 will have on the office market in Stockholm, as we are still in this challenging position and the situation resembles nothing that most of us have ever experienced previously. However, after summarising the changes in vacancy levels in central Stockholm in the second quarter of the year, it is nevertheless possible to distinguish patterns that could be interpreted as direct effects of the spread of the virus.
The major demand for offices in central Stockholm over the last few years has involved lock-in effects as a consequence of a rather stagnant supply. This has contributed to rising rent levels, yields at a record low and very low vacancy levels. Before the pandemic took hold in Sweden, right at the start of the year, surveys showed that the industry was expecting these figures to turn or stagnate.
The vacancy levels observed in CBD have risen by 1.5 percentage points on average between March and June 2020, from 3.1 per cent to 4.5 per cent. The total number of vacant square metres of office space has increased by 36 per cent over the period, from around 74,000 square metres to 101,000 square metres. Vacant co-working spaces and sublets are included, as together they constitute just a small part of the total portfolio. It has been noted that the number of sublets and rentals of surplus space have also increased over the period, which may indicate that many tenants are seeking opportunities for financial assistance or that tenants are not expecting in the immediate future to be able to use their space to the same extent as before. It is important to point out that there may be discrepancies in these figures, such as new tenants signing contracts for properties that have not been published as yet and new properties not yet coming out onto the market. However, these would probably constitute a very small deviation from the actual situation.
Over the last few years, tenants in the central parts of Stockholm have noted that a lack of space is the biggest factor inhibiting their further growth as it has meant they have been unable to recruit new staff. It is now possible to tell from the vacant portfolio that the average office space has increased slightly. This may indicate reassessment of the need for office space for further growth as a consequence of an anticipated increase in remote working, in combination with concern for the future.
Opinions of offices as a low-risk segment have altered throughout the pandemic as premises have stood empty while people have been forced to work from home. However, this is dependent on the composition of tenants for each individual real estate owner and the lengths of their contracts. As a result of this, it is conceivable that the creative solutions may increase going forward; where tenants in turn lease out surplus space against flexible contracts, or where companies start sharing offices more widely.
Vacancy levels in the most attractive locations are now higher than we have seen in many years, and the question that arises is whether increasing vacancies are merely linked directly to the pandemic or whether the pandemic has given the anticipated trend a hard shove. Another factor that should be taken into account involves the planned projects that will add further square metres to the office portfolio in CBD over the next few years. However, time will tell how offices as a concept will change in the wake of the pandemic and the enforced switch to more digital and mobile working methods.