How and where we work has changed dramatically during the last 2 years. This has impacted our cities, and especially office districts that have suffered disproportionately. As we can already see, cities and office districts will recover at a different pace depending on the nature of their workforce, employers and urban characteristics. Some might rapidly return to pre-pandemic office activity levels, whilst others will need to implement structural urban change to attract employment back.
We wanted to compare how key European employment centers will be able to retain office-based employment and subsequent office demand post-pandemic. Our research is based on three key pillars that will drive urban employment post-pandemic: what remote working strategies employers will deploy, how often are employees likely to come back to the office, as well as the specific urban and economic context of each city.
In our previous study, we have gathered through interviews the post-pandemic remote working strategies and workplace demand from 80 major organisations, currently occupying more than 15 million square meters of office space in Europe. This study has identified significant differences between industry sectors and scale of organisations. As expected, large process-driven organisations, such as banks, will implement very high levels of remote work, in comparison to smaller, local, or knowledge-intensive firms. How a city or neighbourhood will be impacted in the near future will therefore partly depend on the scale and industry sectors of its dominant occupiers.
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How strongly are organisations driven to require strong physical presence?
→ Share of employment in sectors prone to adopt strong remote working policies
→ Share of large organisations
→ Office affordability
How often are employees likely to come back to the office?
→ Average length of commute
→ Increase of remote working during pandemic
What is the outlook for employment and office stock growth?
→ 10-year office-based employment forecast
→ Potential for transfer from lower quality office (grade C&D) to modern stock (grade A&B)
→ Quality of life index
Compact and knowledge-intensive cities will perform strongly.
Madrid, Prague and Amsterdam show the strongest outlook for urban employment and office demand post-Covid. These compact cities, and especially Madrid, have been able to retain a larger percentage of their workforce within urban boundaries and have efficient public transportation systems reducing the burden of commuting.
These cities are also less exposed to large and process-driven employers that are more likely to adopt aggressive remote working policies. Other CEE capital cities perform very strongly as they are still forecasting strong employment growth in knowledge sectors, have smaller scale employers, and very limited modern office stock per employee.
Madrid performs top of the league in nearly all our categories. It has the best outlook score driven by the highest office-based employment forecasted growth in Europe. It is much less exposed to process-driven industries (such as financial services) and enjoys a well-functioning public transportation and shorter commutes.
Prague is a historic city that succeeded to retain its human scale, supported by a very strong public transportation network. Consequently, employees have a reasonable commute and many reasons to come back to their urban offices. The city benefits from a very strong local SMEs network that will retain its demand for physical offices. In addition, as all the major CEE capital cities, Prague will continue to increase its office-based employment.
The impact of hybrid working will remain limited as Dutch employees already enjoyed a very high degree of flexibility pre-pandemic. Amsterdam’s office stock is usually well connected to a vibrant and mixed-used city. The city will also continue to see one of the highest increase in its office-based employment in Western Europe.
Cities with heavy suburbanised workforce will suffer more.
Unsurprisingly, cities with a very high percentage of suburban commuters, high exposure to process-driven industries, and limited employment growth will suffer the most. Frankfurt, Paris and London perform very poorly against most of these drivers. The high share of suburbanized workforce and atone employment growth is also hitting Brussels and Munich hard.
Our analysis very clearly demonstrates a strong correlation between the suburbanization levels (length of commute) and the increase of remote working. Suburbanization has already been an environmental and social issue for these cities. City authorities and investors need to anticipate sharper office reconversion levels in these cities.
Frankfurt scores lowest in our analysis as a result of its strong dependence on the financial sector that will see one of the highest adoption of remote working. Frankfurt's employment also consists of many large-scale, office-based companies and long commute times for employees. The city has traditionally a very generous dedicated office space provision besides a slowly growing office-based employment.
Parisians suffer from long commutes and many work in large corporations, including those in the financial sector. Organisations were also less prepared to remote working but have transitioned successfully. The overall impact might therefore be more important, as many occupiers still offer generous dedicated office space. The shift towards a more decentralized employment model is also accelerating, with significant employment & talent pools outside Paris.
Whilst London will remain a magnet for global talent, it also has a very high expose to all our post-pandemic risk factors. Londoners have notoriously long, uncomfortable and expensive commutes and the city has a very strong exposure to the financial services and large corporate sector. It has a reasonable office-based employment growth forecast, however significantly below many of other EU competitors.
Cities with strong employment growth potential will resist hybrid workplace models better.
Employment growth is a fundamental driver of office demand that will be able to counter-balance the impact of remote and hybrid models on the mid- to long-term.
However, in these cities as elsewhere, employees are much less likely to come back to offices in suburban or mono-functional office districts. Demand for offices in core urban areas will therefore continue and further drive prices up. The strong outlook performance puts these cities on a list to watch.
In our index, Budapest is in fact aligned with Amsterdam as the 3rd most resilient city especially driven by its strong outlook driver. It has the strongest office-based employment forecast over the next 10 years as well as the lowest modern office stock per employee, providing for strong future growth potential of the office sector. Whilst the city has been a magnet for regional and international talent, it suffers from long commutes with traffic congestion.
Whilst Luxembourg has the highest percentage of cross-border commuters in Europe, as well as a staggering exposure to the financial services sector, its office market relies on strong fundamentals. The city has one of Europe’s strongest employment growth forecast besides fiscally limiting the ability of its cross-border workforce to work from home. Residential availability and cost, as well as overall attractiveness, remain a weak point of the city.
Berlin clearly established itself as Germany’s silicon valley and now attracts innovative digital companies from across Europe. The city’s workforce is mostly urban with the best commuting score of our analysis. The city has not been attracting the major German blue chips and banks and therefore has the lowest exposure to sectors most likely to reduce their physical interaction and office demand.
Large, mature markets with limited employment growth potential would pose more risks for shifting to remote working, while, smaller scale ...?
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