Issue link: https://maltatoday.uberflip.com/i/1525500
4 maltatoday | SUNDAY • 18 AUGUST 2024 NEWS Post-COVID impact: Realtors report oversupply of office space CONTINUED FROM PAGE 1 The supply of offices surged before the pandemic as a re- cord number of large-scale developments which includ- ed an office component were approved by planning regula- tors, on the premise that Malta needed more offices to satisfy a growing demand. But these expectations were dampened by the COVID-19 pandemic, with the data show- ing that teleworking has out- lived the two-year austere pe- riod. The share of employees working from home reached an unprecedented peak of 14.8% in 2020 and 2021. Though this figure dipped to 11.5% in 2023 as restrictions were eased, the percentage of teleworkers re- mained notably higher than the 6.1% recorded in 2019. Gaming sector needs less offices But the impact of teleworking on office space demand differs across different sectors of the economy. The services sector, particu- larly those in audit, consul- tancy, and gaming, experi- enced a tangible shift. Several companies in these industries successfully reduced their of- fice space requirements by adopting hybrid work models. For example, some firms now allow employees to work from home two days a week as a cost-cutting measure, thereby decreasing the need for expan- sive office spaces. However, this trend is not uniform across all sectors. In contact-intensive industries, where physical presence is essential, the impact of tele- working has been minimal. Many employees prefer or are required to work on-site due to the nature of their roles, re- sulting in little to no change in office space needs. The manufacturing sector also shows limited uptake of teleworking, with its impact on office space demand remain- ing negligible. This is largely because teleworking is gener- ally confined to administrative roles, and the physical pres- ence of workers is still crucial for manufacturing processes. Even as automation slowly gains ground, Maltese man- ufacturing firms remain reli- ant on traditional production methods, further diminishing the potential for teleworking to reduce office space require- ments. Similarly, in the wholesale and retail sectors, the feasibil- ity of teleworking is low. The nature of these businesses ne- cessitates on-site work, wheth- er it is managing stock, han- dling customer interactions, or overseeing day-to-day opera- tions. As a result, teleworking has had little to no effect on these companies' office space needs. Real estate sector feels the strain The real estate sector, howev- er, tells a different story. The Central Bank report highlights a significant over- supply of commercial office space, a direct consequence of changing work habits post-pandemic. Real estate agents and de- velopers are grappling with a market where demand for of- fice space has not kept pace with supply. This oversupply put down- ward pressure on rent pric- es, forcing landlords to adjust their expectations and insert annual price increase clauses in commercial leases to miti- gate losses. Moreover, some agents high- lighted that new commercial office spaces will soon enter the already struggling market and this could have more se- vere repercussions on com- mercial rent prices. This suggests a misalignment between pre-pandemic invest- ment strategies which antici- pated steady demand for office space, and the current market reality shaped by the shift to- wards teleworking. Some realtors also referred to a decline in foreign direct in- vestment after the pandemic which is further crippling the demand for office space. Teleworking from abroad The report also refers to a growing trend among some companies to leverage tele- working as a means to access a broader labour pool, includ- ing workers that offer servic- es from their homes overseas warning that should this prac- tice become more widespread, it could have significant con- sequences for the demand for local office space, further exac- erbating the challenges faced by the real estate market. The report was published in the Central Bank of Malta's Business Dialogue series which is based on feedback by differ- ent stakeholders in the Maltese economy.