Dynamic office markets are now more likely to be found outside traditionally prime locations, says Savills, as mixed-use and co-working space becomes increasingly popular, challenging the view that trophy office buildings will be desirable to investors in the coming decades.

The international real estate advisor says that new trends in working practices are changing demand and rent levels in new and different locations within cities. In the mid to long-term, fringe neighbourhoods could emerge as 'the new prime' in the office market as alternative asset classes like flexible workspace, work clubs and mixed-use, flexible buildings are, in some markets, becoming as desirable as grade A conventional offices.

Savills has analysed rental growth in different real estate sectors in world cities over the past decade and plotted where each stands on the new Savills rental wave, as part of its new flagship publication, Impacts: the future of global real estate. It identifies cities and sectors which investors may want to take look at more closely for security of income and potential rental growth.

Headlines in the offices sector include:
• Prime office growth has been highest in San Francisco (+99%), Shenzhen and Beijing (both +71%) and London West End (+69%) since 2008. This leaves these city sectors near the top of the rental curve: in late upswing, on a high plateau or in early downswing.
• In Singapore, double digit falls have been seen in prime offices (-26%) leaving these sectors in or near the trough of the rental wave.
• Established prime office markets in cities like London, Tokyo and San Francisco are at the top of the wave but may offer a safe harbour for investors as rents could remain on a ‘high plateau’ for some time.

Savills said that there are still investment opportunities even in the office markets of cities on the crest of the rental wave. The most economically secure and vibrant cities will be able to maintain strong rents and to create stable income streams for investors over a sustained period.

Jeremy Bates, head of Savills Worldwide Occupier Services, commented, “The biggest asset in any nation’s economy is its people. But competition is intense for talented workforces in developed countries with ageing populations, while emerging economies are nurturing an increasing number of young people. New generations will drive occupier demand for certain types of buildings and locations. This will potentially lead to a shift in what constitutes a quality ‘covenant’, with buildings let on short leases to a deep pool of small local businesses potentially finding the most favour with investors as sources of reliable income.”

Yolande Barnes, head of Savills World Research, added, “In these circumstances, we think it is natural investors should be looking at alternative buildings, locations and asset classes that are likely to become the more popular workspaces of the 21st century. It may make sense for investors to curate whole neighbourhoods which offer all elements of life that modern workforces want rather than relying on single use buildings to provide rental income.

'It is not surprising then that office space has been in high demand in big, global cities. In some of them, workspace supply has been limited so rents have risen significantly and fast. This means that prime office markets in global, gateway cities are now at elevated levels at, or near the end of, the late upswing stage of the Savills rental wave.”

(source: Savills)