Avison Young: ‘Emerging Disruptors’ Changing Office Market

The U.S. office market is undergoing a shift from trends that change both occupier demand and new product supply, said Avison Young, Toronto.

The firm said traditional office demand drivers are being joined by “emerging disruptors” that are changing the future of the office-space market and commercial real estate as a whole.

“The office sector and commercial real estate, in general, are not immune to the effects of globalization and technological innovation,” said Avison Young Chair and CEO Mark Rose. “The world is transitioning into a more distributed, automated and digital economy, which impacts how occupiers conduct business and think about their workplaces. This transition may have profound implications on the role and intrinsic value of property.”

Rose said office owners and developers are finding ways to adapt and provide flexible work environments that meet changing requirements.

“Rapid change has given rise to the idea that technological advances could render physical real estate increasingly obsolete,” Rose said. But history suggests that technology is just as likely to create new jobs as to displace them, he noted.

Rose said firms such as Amazon and WeWork have ranked among the largest office lease transactions this year. “Amazon’s success in the digital realm is translating into increasing demand for physical space–not only in the retail arena, but also the industrial and, now, office sectors, pointing to a new driver of demand in the office market as the e-commerce industry continues to grow,” he said. And the growth of WeWork and other co-working space providers demonstrates that business will still require physical workplaces, “even as we move toward an interconnected world offering anywhere-anytime access to skills on demand,” Rose said.

Avison Young U.S. Operations President Earl Webb said both co-working and flexible spaces have gained market share this year. “We are tracking their impact on office leasing conditions for owners and occupiers,” he said. “Landlords are responding to these trends by retrofitting common areas to include tenant amenities and social-gathering spaces.”