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Impact of the pandemic filters through

Global Real Estate Perspective, August 2020

After a subdued first quarter only partially affected by the outbreak of COVID-19, office markets around the globe witnessed extensive disruption during the second quarter of 2020. Widespread work-from-home programs obscured future space requirements, and lockdowns effectively ceased tour activity in many markets, causing leasing volumes to plummet.

Source: JLL, 2020


Global leasing volumes declined by 59% in Q2 from a year earlier; this is a larger fall than recorded in any quarter during the GFC. Tenants tend to be focused on controlling costs and many are opting to renew or postpone new lettings in response to the uncertainty caused by the outbreak and the challenges it poses to site inspections and fit-out work. Negotiating times on leases have also increased. Given this weak demand profile, vacancy has now moved up in all regions from a stable 10.7% in Q1 to 11.2% in Q2.

Rents in many markets are heading into correction territory, although this partly depends on the level of vacancy prior to the pandemic. In general, landlords have been taking a much more accommodative stance in lease negotiations. On average globally, rental levels declined by 1.2%.

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Heading into the second half of 2020, all eyes will be on the ability of markets to withstand or contain a potential second wave of COVID-19 as well as on tenants’ response to re-entry that began gradually in Q2. With the majority of demand in a state of pause, some degree of rebound in leasing activity is anticipated in Q3 and particularly Q4. While vacancy is likely to continue to move up during the latter half of the year, the impact of subdued leasing volumes in the short term will be cushioned to some extent by a softer development pipeline.

A longer-term perspective: Offices fundamental to corporate culture

Most occupiers are currently focusing on reopening their offices and getting used to the ‘new normal’, including some level of de-densification that meets social distancing requirements. Working from home is now a proven success and has highlighted to many employers and employees that there are benefits to both parties to incorporating this flexibility. Even so, office space still has a pivotal role to play in facilitating essential face-to-face activities that are not easily replicated online. Additionally, there is now an abundance of survey evidence that shows employees are keen to return to the office for at least part of their working week. Offices will remain a fundamental part of corporate culture and play an essential role in work and productivity.