2022 overall a strong year
but demand wanes in Q4

A combination of structural changes to office usage and cyclical challenges affected demand more heavily in the final quarter of 2022. Global office leasing volumes were 6% lower over the quarter and 19% lower than in Q4 2021, with leasing activity moderating across all three regions. Additionally, global net absorption turned negative in Q4 for the first time in 2022.

In most markets high-quality, premium assets continue to significantly outperform the rest of the market as occupiers focus on upgrading space. The global vacancy rate jumped 40bps to 14.9% in Q4, with the largest rise recorded in the U.S.

Many development completions were delayed in 2022 due to cost constraints and supply chain issues, which has led to the peak of deliveries for this cycle being pushed out to 2023. Concerns around future demand levels combined with higher construction and financing costs are likely to mean that breaking ground on new developments will slow appreciably across most locations, particularly in the U.S. and Europe. Refurbishments are expected to prevail as they are seen as a cheaper, quicker and more sustainable option.

Future trends: Bifurcation in the market to continue

Outlook for 2023: Leasing activity is likely to be subdued in the first half of the year as decision-making processes lengthen or are postponed due to economic weakness. However, a brighter second half to 2023 is anticipated, with demand for high-quality assets remaining more robust throughout the year.

Long-term: The ongoing flight to quality by office occupiers will continue to create further bifurcation in the market. Grade B and lower-quality assets, particularly in non-central locations, will struggle to lease up and alternative uses may need to be considered. In more central locations, a move towards heavy refurbishment and retrofitting will be needed to bring assets up to the required standards for occupier needs.