Evolving Workplace Trends Force Office Occupiers and Owners to Adjust Traditional Strategies

New approaches from technology companies and co-working providers across North America and Europe are challenging occupiers' and landlords' office-space accommodation strategies, forcing players in more established sectors to adjust how they think about the size, physical form and operational function of their premises. This transformation continues to encourage new development, which is racing to keep up with demand in some markets and being bolstered by a young, educated workforce gravitating to urban centres.

New approaches from technology companies and co-working providers across North America and Europe are challenging occupiers' and landlords' office-space accommodation strategies, forcing players in more established sectors to adjust how they think about the size, physical form and operational function of their premises. This transformation continues to encourage new development, which is racing to keep up with demand in some markets and being bolstered by a young, educated workforce gravitating to urban centres.

These are some of the key trends noted in Avison Young's Mid-Year 2018 North America and Europe Office Market Report, released today.

The report covers the office markets in 67 metropolitan regions in Canada, the U.S., Mexico, the United Kingdom, Germany and Romania: Calgary, Edmonton, Halifax, Lethbridge, Montreal, Ottawa, Regina, Toronto, Vancouver, Waterloo Region, Winnipeg,Atlanta, Austin, Boston, Charleston, Charlotte, Chicago, Cleveland, Columbus, OH; Dallas, Denver, Detroit, Fairfield County,Fort Lauderdale, Greenville, Hartford, Houston, Indianapolis, Jacksonville, Las Vegas, Long Island, Los Angeles, Memphis, Miami, Minneapolis, Nashville, New Jersey, New York, Oakland, Orange County, Orlando, Philadelphia, Phoenix, Pittsburgh, Raleigh-Durham, Reno, Sacramento, San Antonio, San Diego County, San Francisco, San Jose/Silicon Valley, San Mateo, St. Louis, Tampa, Washington, DC; West Palm Beach, Westchester County, Mexico City, Coventry, London, U.K.; Manchester, Berlin, Duesseldorf, Frankfurt, Hamburg, Munich and Bucharest.

"Against a backdrop of economic, geopolitical and financial volatility, the commercial property markets - for the most part - are functioning under relatively sound fundamentals," comments  Mark E. Rose, Chair and CEO of Avison Young. "Nowhere are we seeing more profound changes than in the office sector - especially in urban areas of major metropolitan markets across the six countries covered in our annual review. The impact can be seen on city skylines, which are changing rapidly as new construction picks up pace, driven by insatiable tenant demand from organizations adjusting their workplace strategies to a growing millennial workforce and their adaptability to innovative technologies."   

Rose continues: "At the same time, sectors that have historically accounted for a significant amount of demand for office space are now being both augmented and squeezed by ever-expanding technology and co-working industries. This phenomenon is being seen across national boundaries, particularly in markets with dense and growing urban populations."

According to the report, of the 67 office markets tracked by Avison Young in North America and Europe, which comprise more than 6 billion square feet (bsf), market-wide vacancy rates declined in 38 markets, remained unchanged in seven, and increased in 22 markets as almost 74 million square feet (msf) was absorbed on an annualized basis.

The report goes on to say that construction cranes remained prominent fixtures across many skylines as nearly 74 msf of office space was completed during the 12-month period, while another 138 msf was under construction at mid-year 2018 - with 50% of the space preleased.

"It's great to see so much confidence on the part of developers as they respond to the supply-demand imbalance in many markets," says Rose. "As always in this industry, the inherent risk is that circumstances could change, resulting in an oversupply of product at the time of delivery. In many cases, this scenario is the result of external economic and geopolitical factors. This time around, however, the new influences of disruptive technologies and increasing co-working space availability are also affecting how and where people work, potentially impacting the office sector from within - and challenging conventional wisdom."

Rose adds: "Generally sound office market fundamentals are being threatened on the North American front by ongoing NAFTA talks. In Europe, the looming Brexit deadline continues to dominate the headlines in the U.K., while in Germany, strong leasing activity continues to drive vacancy rates downward in all Avison Young markets. In Bucharest, Romania, development continues in response to demand."

CANADA
Canada's office property markets remained sound through the first half of 2018, supported by stable macroeconomic indicators, including healthy employment numbers, GDP growth and a rebounding Alberta economy. However, U.S. protectionist policies and escalating tariffs pose a risk to the Canadian economy and global trade flows, and may lead to moderating growth ahead.

"Intense competition for office space continues to bolster office market fundamentals across Canada - especially in downtown markets," states  Bill Argeropoulos, Principal and Practice Leader, Research (Canada) for Avison Young. "Demand from traditional sectors is being augmented by the proliferation of domestic and global technology and co-working firms, ongoing urbanization and a burgeoning millennial workforce - all part of Canada's emerging innovation economy."

The report shows declining vacancy rates in more than half of the Canadian office markets with suburban markets outpacing downtown markets in terms of absorption (led by Montreal and Vancouver) and new deliveries (led by Toronto, Vancouver and Montreal) during the past 12 months. However, the amount of downtown space under construction at mid-year (led by Toronto) outstripped the suburbs by a significant margin.

Argeropoulos concludes: "Urbanization - partly attributable to growth in the technology sector - has created a noticeable gulf between downtown and suburban vacancy rates in emerging tech hubs such as Vancouver, Toronto, Waterloo Region, Ottawa and Montreal. Given tight conditions and upward pressure on rents in some of the nation's downtown markets, and with little or no near-term supply relief, suburban markets - particularly those offering transit connectivity and other urban amenities - may be the beneficiaries of overflowing tenant demand during the next couple of years."

Notable Mid-Year 2018 Canadian Office Market Highlights: 

U.S.
The U.S. office market has benefited from another strong 12-month period of positive economic indicators: Further business expansion and job growth, decades-low unemployment, and rising consumer and business spending. Business spending kept its momentum in the first half of 2018, boosted by corporate tax breaks even while the federal government moved toward greater isolationism and global trade uncertainty. As of June, U.S. unemployment averaged 4% and employment over the last 12 months grew by 2.4 million, supported by the office-occupying professional and business sector gaining 521,000 jobs.

The 5.2-bsf U.S. office market reported net absorption of 43 msf on the strength of gains in five markets each achieving more than 3 msf.

"In spite of this strong take-up, I'm not surprised that the overall vacancy rate remains elevated given the volume of construction underway and the continuing trend of more efficient space design," says  Earl Webb, Avison Young's President, U.S. Operations.

U.S. office market trends mirror those in Canada, registering an increasing impact from co-working firms. Occasionally, co-working companies have occupied large blocks of space in oversupplied markets, helping to keep vacancy in check, and the concept's popularity with tenants has forced landlords to compete by adding conference rooms, tenant centers and social spaces.

Webb continues: "Flexible occupancy is key. We also see some national corporate tenants utilizing co-working space in order to control costs and create that flexibility. One co-working operator's recent announcement that it is moving into brokerage operations could further disrupt the office market, and we'll be watching that situation and other co-working developments as we head into 2019."

The report goes on to discuss other recent and continuing trends, including the redevelopment of aging inventory and developers' emphasis on offering transit-oriented mixed-use projects. Tenants continue to display a preference for amenity-laden buildings and geographies - an important recruiting strategy designed to appeal to the millennial workforce in the tight U.S. labor environment.

Notable mid-year 2018 U.S. office market highlights: 

"As we forecasted at mid-year 2017, the flight to quality and tenant demand for efficient, amenity-rich options carried into 2018 - and showed no signs of abatement, while class A rents, downtown and suburban, edged higher," concludes Webb. "High-quality development will continue to boost tenant occupancy and garner higher rents and institutional interest while outperforming the market at large through year-end."

Please turn to the following pages of the report for local market highlights. For comments on individual markets, please contact the Avison Young representatives listed below. Thank you. 

pp.4-5 Canada & U.S.:  
Bill Argeropoulos, Principal and Practice Leader, Research (Canada), 416.673.4029 or 416.906.3072 (cell) bill.argeropoulos@avisonyoung.com

Margaret Donkerbrook, Principal and Practice Leader, U.S. Research, 202.644.8677 margaret.donkerbrook@avisonyoung.com

Canada
p.17 Calgary                                                                                                                            
Todd Throndson, Principal and Managing Director, 403.232.4343 todd.throndson@avisonyoung.com

p.18 Edmonton                                                                                                                        
Cory Wosnack, Principal and Managing Director, 780.429.7556 cory.wosnack@avisonyoung.com

p.19 Halifax                                                                                                                  
Michael Brown, Managing Director, 902.454.4110 michael.brown@avisonyoung.com

p.20 Lethbridge                                                                                                                                    
Doug Mereska, Managing Director, 403.330.3338 doug.mereska@avisonyoung.com

p.21 Montreal                                                                                                                           
Denis Perreault, Principal and Managing Director, 514.905.0604 denis.perreault@avisonyoung.com

p.22 Ottawa                                                                                                                  
Michael Church, Principal and Managing Director, 613.567.6634 michael.church@avisonyoung.com

p.23 Regina                                                                                                                              
Dale Griesser, Managing Director, 306.559.9001 dale.griesser@avisonyoung.com

p.24 Toronto                                                                                                               
Martin Dockrill, Principal and Managing Director, 905.283.2333 martin.dockrill@avisonyoung.com

p.25 Vancouver
Michael Keenan, Principal and Managing Director, 604.647.5081 michael.keenan@avisonyoung.com

p.26 Waterloo Region                                                                                       
Ted Davis, Managing Director, 226.366.9040 ted.davis@avisonyoung.com

p.27 Winnipeg                                                                                                                          
Wes Schollenberg, Managing Director, 204.560-1501 wes.schollenberg@avisonyoung.com

United States
p.29 Atlanta                                                                                                      
Steve Dils, Principal and Managing Director, 404.865.3663 steve.dils@avisonyoung.com

p.30 Austin                                                                                                                   
Corey Martin, Principal and Managing Director, 512.717.3084 corey.martin@avisonyoung.com

p.31 Boston                                                                                                                              
Michael Smith, Principal and Managing Director, New England, 617.575.2830 michael.smith@avisonyoung.com

p.32 Charleston
Chris Fraser, Managing Director, South Carolina, 843.725.7200 chris.fraser@avisonyoung.com

p.33 Charlotte                                                                                                                           
John Linderman, Principal and Managing Director, North Carolina 919.420.1559 john.linderman@avisonyoung.com

p.34 Chicago                                                                                                                            
Danny Nikitas, Principal and Managing Director, 312.940.8794 danny.nikitas@avisonyoung.com

p.35 Cleveland
Chris Livingston, Principal and Managing Director, 216.406.1131 chris.livingston@avisonyoung.com

p.36 Columbus, OH
Scott Pickett, Principal and Managing Director, 614.264.4400 scott.pickett@avisonyoung.com

p.37 Dallas
Greg Langston, Principal and Managing Director, 214.269.3115 greg.langston@avisonyoung.com

p.38 Denver                                                                                                                  
Alec Wynne, Principal and Managing Director, 720.508.8112 alec.wynne@avisonyoung.com

p.39 Detroit                                                                                                                              
Jim Becker, Principal and Managing Director, 313.209.4121 jim.becker@avisonyoung.com

p.40 Fairfield County
Sean Cahill, Principal and Managing Director, 203.614.1264 sean.cahill@avisonyoung.com

p.41 Fort Lauderdale   
Pike Rowley, Principal and Managing Director, Florida, 954.938.1807 pike.rowley@avisonyoung.com

p.42 Greenville             
Chris Fraser, Principal and Managing Director, South Carolina, 843-725-7200 chris.fraser@avisonyoung.com

p.43 Hartford    
Andrew Filler, Principal and Managing Director, 860.327.8302 andrew.filler@avisonyoung.com

p.44 Houston                                                                                                                            
Rand Stephens, Principal and Managing Director, 713.993.7810 rand.stephens@avisonyoung.com 

p.45 Indianapolis         
Bill Ehret, Principal and Managing Director, 317.210.8808 bill.ehret@avisonyoung.com

p.46 Jacksonville
Pike Rowley, Principal and Managing Director, 954.938.1807 pike.rowley@avisonyoung.com

p.47 Las Vegas
David Jewkes, Principal and Managing Director, 702.472.7978 david.jewkes@avisonyoung.com

p.48 Long Island          
Ted Stratigos, Principal and Managing Director, 516.962.5399 ted.stratigos@avisonyoung.com

p.49 Los Angeles
Chris Cooper, Principal and Managing Director, Southern California 213.935.7435 chris.cooper@avisonyoung.com

p.50 Memphis
Warren Smith,��Managing Director, 615.727.7409 warren.smith@avisonyoung.com

p.51 Miami
Donna Abood, Principal and Managing Director, 305.447.7857 donna.abood@avisonyoung.com
Michael Fay, Principal and Managing Director, 305.447.7842 michael.fay@avisonyoung.com

p.52 Minneapolis          
Mark Evenson, Principal and Managing Director, 612.913.5641 mark.evenson@avisonyoung.com

p.53 Nashville  
Warren Smith, Managing Director, 615.727.7409 warren.smith@avisonyoung.com 

p.54 New Jersey
Jeff Heller, Principal and Managing Director, 973.753.1100 jeff.heller@avisonyoung.com

p.55 New York
Arthur Mirante, Principal and Tri-State President, 212.729.1896 arthur.mirante@avisonyoung.com 
Mitti Liebersohn, Principal and Managing Director, 212.729.7734 mitti.liebersohn@avisonyoung.com   

p.56 Oakland
Charlie Allen, Principal and Managing Director, 510.333.8477 charlie.allen@avisonyoung.com

p.57 Orange County
Keith Kropfl, Principal and Director of Brokerage Services, 949.430.0680 keith.kropfl@avisonyoung.com

p.58 Orlando
Greg Morrison, Principal and Managing Director, 407.440.6640 greg.morrison@avisonyoung.com

p.59 Philadelphia
David Fahey, Principal and Managing Director, 610.276.1081 david.fahey@avisonyoung.com

p.60 Phoenix
David Genovese, Principal and Managing Director, 480.423.7900 david.genovese@avisonyoung.com

p.61 Pittsburgh
Brad Totten, Principal and Managing Director, 412.944.2132 brad.totten@avisonyoung.com

p.62 Raleigh-Durham
John Linderman, Principal and Managing Director, North Carolina 919.420.1559 john.linderman@avisonyoung.com

p.63 Reno                                                                                        ��                                        
John Pinjuv, Managing Director, 775.332.7300 john.pinjuv@avisonyoung.com

p.64 Sacramento
Thomas Aguer, Principal and Managing Director, 916.563.7827 tom.aguer@avisonyoung.com

p.65 San Antonio         
Marshall Davidson, Principal and Managing Director, 210.714.8083 marshall.davidson@avisonyoung.com 

p.66 San Diego
Jerry Keeney, Principal and Managing Director, 858.201.7077 jerry.keeney@avisonyoung.com

p.67 San Francisco
Nick Slonek, Principal and Managing Director, Northern California 415.322.5051 nick.slonek@avisonyoung.com

p.68 San Jose/Silicon Valley
Gregg von Thaden, Principal and Managing Director, 408.913.6901 gregg.vonthaden@avisonyoung.com

p.69 San Mateo
Randy Keller, Principal and Managing Director, 650.425.6425 randy.keller@avisonyoung.com

p.70 St. Louis
Tim Convy, Principal and Managing Director, 314.650.6601 tim.convy@avisonyoung.com

p.71 Tampa
Ken Lane, Principal and Managing Director, 813.444.0623 ken.lane@avisonyoung.com 
Clay Witherspoon, Principal and Managing Director, 813.444.0626  clay.witherspoon@avisonyoung.com

p.72 Washington, DC                                                                                                                
Josh Peyton, Principal and Managing Director, 202.644.8688 josh.peyton@avisonyoung.com

p.73 West Palm Beach
Jonathan Satter, Principal and Managing Director, 561.721.7031 jonathan.satter@avisonyoung.com

p.74 Westchester County
Sean Cahill, Principal and Managing Director, 203.614.1264 sean.cahill@avisonyoung.com

Mexico 
p.76 Mexico City
Guillermo Sepulveda, Principal and Managing Director, 52 55 4123 7570 guillermo.sepulveda@avisonyoung.com 

United Kingdom
p.78 Coventry
Robert Rae, Principal and Managing Director, +44 (0)24 7663 6888 robert.rae@avisonyoung.com

p.79 London
Jason Sibthorpe, Principal and Managing Director, U.K. +44 (0)20 7046 6514 jason.sibthorpe@avisonyoung.com

p.80 Manchester
Mark Williams, Principal and Managing Director, +44 (0)161 819 8220 mark.williams@avisonyoung.com

Germany
p.82 Berlin
Nicolai Baumann, Managing Director, +49 30 920 320 110 nicolai.baumann@avisonyoung.com 

p.83 Duesseldorf
Stephan Heinen, Principal and Managing Director, +49 211 22070 100 stephan.heinen@avisonyoung.com

p.84 Frankfurt
Udo Stoeckl, Principal and Managing Director, Germany +49 69 962 443 111 udo.stoeckl@avisonyoung.com

p.85 Hamburg
Udo Stoeckl, Principal and Managing Director, Germany +49 69 962 443 111 udo.stoeckl@avisonyoung.com

p.86 Munich
Markus Bruckner, Principal and Managing Director, +49 89 150 025 250 markus.bruckner@avisonyoung.com

Romania
p.88 Bucharest
David Canta, Principal of Bucharest Operations and Managing Director, +40 727 737 894 david.canta@avisonyoung.com

Avison Young is the world's fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 2,600 real estate professionals in 84 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial, multi-family and hospitality properties. 

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Editors/Reporters
• Click here to view Avison Young's Mid-Year 2018 North America and EuropeOffice Market: 
https://avisonyoung.uberflip.com/i/1014719-aymid18namericaeuropeofficemktreportaug16-18final

Media Contact: Sherry Quan, +1-604-647-5098 or +1-604-726-0959 cell, email: sherry.quan@avisonyoung.com