Office death is grossly exaggerated - but the market is divided

Office death is a concept that has been widely discussed since the pandemic. As more and more companies allow remote or hybrid working, the need for airy premises that are half-empty decreases. But how bad is it really?

According to the consulting company Newsec, it depends entirely on the type of property in question. The vacancy rate in modern offices at the most attractive addresses is currently 4.6 percent in Stockholm, which is the lowest figure in the entire Nordic and Baltic region, compared to 13.5 percent for the market as a whole.

- The view of what is an attractive location has changed as we have become less car-bound. The digital technology shift has also changed the design of the office. This leads to certain locations and offices increasing in attractiveness while others lose, says Max Barclay, CEO at Newsec.

The crisis therefore mainly concerns older offices that were built in a time when we took the car to work and were on site five days a week. In Stockholm, Kista has become the clearest symbol of development. The vacancy rate in the area exceeds 30 percent according to several measurements and is expected to increase further when Ericsson moves its entire operations to Hagastaden in a few years.

- There are a lot of offices left over, which are not needed. It's pure mathematics, says Max Barclay.

The image of a divided office market is shared by Hanna Björklund, who is a business developer at the real estate company Castellum in Stockholm.

- There are high mountains and deep valleys. Good properties in good locations get positive signals from tenants I meet, while dated properties in peripheral locations we barely get a viewing, she says.

On the other hand, she does not want to condemn areas like Kista, even though many companies have moved there. According to Newsec's figures, only every second tenant chooses to extend their lease in the area, compared to 62 percent in central Stockholm and 75 percent in the country as a whole.

- I think Kista is fantastic. It's a good geographic location that has gotten a bit of an undeserved bad reputation over the years. Here you need to work on more things than just the physical properties, says Hanna Björklund.

Another trend is that average premises are shrinking, from 225 square meters after the turn of the millennium to around 190 square meters today. A common perception is that development took off after the pandemic, but according to Newsec, this trend started earlier than that.

Between 2010 and 2015, tenants who extended their contracts increased their space by 30 percent on average. Between 2016 and 2019, the trend turned to a decrease of 16 percent, which has then accelerated in recent years.

- Historically, the vacancies have arisen in economic downturns and sorted themselves out in upswings. When the need now so clearly decreases in the number of square meters per person, there will simply be no more offices, even if the economy turns around, says Max Barclay.

But you don't buy the talk about office death?

- No, it is grossly exaggerated or completely incorrect. The office is still a very attractive place to build companies and careers.