Demand for office space in Europe is an example of long-term trends colliding with unpredictable shocks to shift a market and create
financial pressures. On top of the ongoing disruption from the pandemic and broader shifts in working patterns, the commercial real
estate sector is now further threatened by a generally weakening economic environment in Europe. Less square footage is expected to
be available overall, as landlords either extensively renovate older buildings to comply with new environmental standards or
redevelop offices to serve other uses altogether, like retail or residential.
The cost of renting office space will go up to compensate owners for new energy efficiency retrofits and companies looking to reduce
their emissions can either upgrade to more energy-efficient space, reduce their total space, or both. This means that net debt to
EBITDA
1
ratios have weakened for many real estate investment trusts, increasing from an average of 11x in 2019 to 13x in 2021.
“Investors and operators who can better anticipate developments in commercial real estate by piecing together previously separate data sets on occupancy rates, deal flow, and energy efficiency standards will be well-placed to capitalize — while those who are caught off guard risk losing out on financial value.”
– Luis Amador
General Manager, Commercial Real Estate, Moody’s Analytics
