AMSTERDAM, July 11, 2024 - The latest figures from international real estate consultant Cushman & Wakefield show that in the first half of 2024, take-up of office space has reached 351,000 m². This represents a 16% increase in transaction dynamics in the office space occupier market compared to the same period last year.
The supply of office space decreased slightly by 3.5% and currently comprises 4.3 million m². Although not all supply is actually vacant, the decline in vacancy rates moves correspondingly with a 0.4%-point decrease to reach 8.0% of the office stock by mid-2024. At the same time, record rents are being achieved for high-quality buildings in prime locations. These offices are mostly located in the five largest cities, which explains that in the first six months about two-thirds (64%) of all transaction dynamics in the Netherlands took place in these cities.
At first glance, the increased take-up appears to be driven by improved sentiment in the office market, but more nuances should be made. On the one hand, office-based organisations must anticipate the search for scarce talent ('War for Talent'), in which an inspiring work environment can make an important contribution. On the other hand, many companies are once again taking a wait-and-see attitude due to increased costs, disappointing margins, and an uncertain economic picture heading into the next year. Although the five largest cities have steadily expanded their dominant position in the transaction dynamics to almost two-thirds of the Dutch office take-up, the increase in this share of Dutch take-up compared to last year is largely explained by the high transaction activity of the Rijksvastgoedbedrijf in The Hague. Currently, the department is realising its sustainability ambitions. To both make the existing portfolio more sustainable and maintain the same number of available workplaces, the service acquired or is acquiring approximately 75,000 m² from other office users in The Hague. The purchase of Prinses Beatrixlaan 23 and Lange Houtstraat 8 (53,000 m2 combined) are particularly exemplary in this regard.
In the first half of 2024, the trend of hybrid working continues to develop. In this context, office users prefer locations with excellent accessibility and all possible facilities within easy reach. However, it is not so much about less square footage, but about a different way of using space in alternative locations. Office buildings are, more than ever, being realised in vibrant living and working environments, where people can make the most of themselves both professionally and personally. This indicates a shift in demand for specific types of offices: high-quality, sustainable buildings in prime locations in the centres of major cities.
The current search demand translates into stable supply and vacancy trends with rising rent levels. This indicates polarisation in the office market, caused by the scarcity of desirable, high-quality offices. Office users tend to have the same search demand for new accommodation, causing selective upward demand pressure in the top segment of the market. If the search request remains unsuccessful, they do not generally move to second best, but instead extend the current lease for a short period until suitable office space becomes available that does meet all the requirements.
The selective demand for and scarcity of high-quality offices are, logically, driving up rents for these types of properties. This rent increase comes on top of the increase in other housing and labor costs that office users have faced over the past year. As a result, they are clearly balancing between weighing new economic risks, such as the likelihood of an extended period of limited economic growth, on the one hand, and having to anticipate continued tight labor market conditions, on the other.
Four of the five major cities recorded lower vacancy rates than the national average of 8.0%. However, Amsterdam, with the largest office stock and highest rents, is seeing a sharp increase in vacancy rate from 6.9% to 9.6% in six months. This increase can be attributed to the relatively simultaneous completion of new, high-quality office buildings, which has also led to a widening of the supply in existing construction. The increased vacancy rate is therefore not the result of offices being 'returned to the market' by users due to reduced use, nor is it a case of a worsened business climate. The widening of the office supply results in chains of relocation to new, high-quality offices, with the logical consequence that the space left vacant is used by property owners to make the property more sustainable before putting it back on the market. A telling example of this is Booking.com, which last year moved into a new office on Oosterdokseiland, saying goodbye to as many as eleven offices in the center of Amsterdam. A similar example is found in the relocation of De Persgroep from Oostenburg to its new home at the Amstel Business Park in early 2024.
In short, in the second quarter, the office market shows a more positive result compared to the same period last year, the major factor being the absorption of the Rijksvastgoedbedrijf in The Hague. Although office market dynamics are dampened by the scarcity of suitable supply, there are signs of a shifting office landscape in Amsterdam. More high-quality supply is entering the market, at correspondingly high rents. This development challenges office users to make new trade-offs: on the one hand, they choose high-quality offices to facilitate the new interpretation of office use in the best possible way; on the other hand, they must weigh this against the economic consequences of the current high rents for business operations.