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There has been a further decline in office occupancy rates in the Helsinki area over the last 18 months. The increased vacancy has given those looking for office space more choice. Statistics show that a large proportion of those relocating are moving to smaller premises. In fact, the average size of new office leases has decreased compared to pre-pandemic levels. At the same time, space seekers are paying more attention to the location of the space, as well as various features that will draw people back to the office.
According to the Helsinki Research Forum, office vacancy rates in the central office market in the Helsinki metropolitan area have remained significantly higher than before the pandemic. Vacancy rate has been on an upward trend. However, the rate of increase slowed down in 23Q4. The vacancy rate rose by 0.2 percentage points to 14.6% in 23Q4 compared to the end of the previous quarter. Compared to the same period in 2022, vacancy rate increased by 2 percentage points in the last quarter of 2023.
At the same time as the office vacancy rate has increased, the owners of the properties have maintained the nominal rents. This has led to pressure for various incentives in new contracts. For example, rent-free months are preferred to reduced nominal rent. According to Statistics Finland, rents for office space increased by 5.9% in 2023 compared to 2022. The rise in rents is largely explained by the index increases made to existing contracts.
The second half of 2022 saw an increase in yield requirements, which was also the case in 2023. With rising yield requirements, the price views of buyers and sellers did not converge, slowing the volume of transactions in the office sector to its lowest level in a decade in 2023.
After historically low volumes last year, the market is anticipating an increase in transaction volumes across all commercial property sectors. This is evident from the Rakli-KTI Commercial Property Barometer. Growth expectations are mainly driven by lower inflation and a levelling off of interest rate rises.
The office market has been affected by various trends in recent years. One of the most significant trends is the increasing trend for remote work. The number of Finns working remotely has been steadily increasing. By European standards, Finns are avid remote workers. This has had an impact on the dynamics of the office market, for example.
In Helsinki, the number of commuters is still lower than it was before the pandemic, which is reflected in the number of people who use the metro, for example. As a result, the number of metro passengers in office-dominated areas has decreased significantly. On a more positive note, there has been a marked recovery in the number of commuters from the lows of the pandemic. The return to office work is continuing, but slowly.
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Anton TakkavuoriReal Estate AnalystRetta Managementanton.takkavuori@retta.fiPuh. 0400 853 528
