Colliers Aarhus Delrapport 2023 UK

OFFICE

Still strong but changeable letting market

Early 2022 saw favourable conditions in the Aarhus office market as Danish economy regained momentum and employment levels rose. Conditions deteriorated dramatically as the year wore on: Inflation hit new highs and interest rates saw a sharp increase. However, the Aarhus office market proved resilient in terms of sustained strong occu- pational demand throughout 2022 irrespective of the change in market conditions.

Nevertheless, the coronavirus pandemic has prompted a dramatic change in the preferences of Aarhus office users. More than anything, business tenants clearly appear to push for flexible lease terms with shorter commitment periods as well as flexible office layouts making it possible for the ten ants to adapt to a changeable market. This trend has only amplified due to the war in Ukraine along with the rise in inflation and interest rates. Similarly, Aarhus office users are increasingly demanding “full-service” and high-quality lease premises, translating into stricter requirements for office newbuilds. In addition, businesses have been required to adjust to a more versatile working environment, as workers increasing- ly opt for homeworking or tend to share workstations. Par adoxically, this trend has not served to reduce corporate area requirements in general. Instead, the freed-up space has been used to enhance office arrangements, in part to encourage office attendance. Broadly speaking, focus is on creating attractive office premises that inspire existing as well as future workers. Despite a paradigm shift in demand, overall office occu pational demand remains strong in Aarhus, albeit with a sharper focus on office tenant requirements. For instance, office vacancy rates remain at a 10-year low, defying un- certain market conditions. There are virtually no vacancies among the best located office leases that meet new tenant requirements and are owned by landlords prepared to ac-

commodate the tenants by offering shorter lease commit ment periods and possibly partly fund tenants’ fitting-up costs. Due to the current high inflation, index-linked rent adjust ment may drive up the market rent of both prime and sec ondary office space in Aarhus. For the time being, mainly the owners of the best located and most coveted office premises, whose tenants generally tend to be less price sensitive, expect to carry out full rent indexation without the risk of tenants moving out and vacancy rates rising. The same applies to office leases that are today severely under-rented. However, we have anecdotal evidence sug gesting a general trend of maximum rent adjustments in prime and secondary properties alike and across all locations. Even though newbuilding activity is brisk in Aarhus, the new office supply is expected to be absorbed by demand. This is to be held up against the fact that only more or less new or modernised office facilities meet today’s generally higher office standards. The older and more secondary building stock, which is functionally obsolete, is expected to bear the brunt of this trend, with vacancy rates likely rising as new offices are completed. However, the scenario hinges on multiple factors, including the future gap be- tween prime and secondary rent levels as it is to be expect- ed that more price-sensitive tenants will be increasingly prone to shift to secondary offices.