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Offices on the increase

04 August 2017

Across the globe, an unprecedented office building boom is underway with over 65 mln sqm of space under construction that will deliver between now and the end of 2019, Cushman & Wakefield’s Global Office Forecast reports. That’s the equivalent of recreating five cities worth of office inventory – Washington, DC, Dallas, London, Singapore and Shanghai – over the next three years.

The report details economic drivers, supply and demand forecasts and prospects for rent growth in more than 100 cities around the world.

Although demand, as well as job growth, will remain healthy through 2019, totaling app. 48 mln sqm, it will fall far short of supply, which will cause vacancy to rise in most cities around the world. From that perspective, the world is overbuilding.

Or, not. It also has been abundantly clear throughout this global expansion that most occupiers generally favor new, high-quality office space over older, Class B and C product. In the U.S., for example, newly built high-quality space has accounted for 65 pct of all office absorption since 2012. More often than not, developers have been rewarded throughout this cycle for delivering prime product, even in markets where vacancy is elevated. Additionally, the combination of an accelerating global economy with low interest rates is a recipe for healthy office-demand conditions.

“Developers are certainly placing some big bets on new product, but the bulk of it is concentrated in the major global cities, which is precisely where the greatest appetite is for these shiny new buildings,” said Kevin Thorpe, the global chief economist at Cushman & Wakefield. “I’m less concerned about the new space leasing up, because in a sense, that is supply rushing to meet demand. It’s giving tenants exactly what they are asking for. I’m more concerned about what this wave of supply means for lower-grade product, which I suspect will have a difficult time competing.”

The development boom will be led by Asia Pacific, particularly Greater China. In fact, nearly 60 pct of the world’s new construction will be concentrated in the Asia Pacific region. Within the region, new supply is concentrated in a handful of markets: Beijing, Shenzhen, Shanghai, Manila and Bangalore. Indeed, those five markets account for 55 pct of construction taking place in Asia Pacific and over one-third of construction worldwide. Much like the supply side, the demand side of the equation is strongest in Asia Pacific. Beijing will have the distinction of leading the world in both supply and demand growth.

The Americas region is also in the midst of a robust construction cycle, peaking in 2017 and tapering offer somewhat in 2018 and 2019. . Still, the U.S., Canada and Latin America will all build more space than they will absorb over the next few years. Again, it varies greatly from one city to the next, and the bulk of new space is concentrated in the largest cities, many of which arguably need it the most.

“In Europe the number of buildings underway is growing, although at a slower pace than in other regions. Over the next two years some key office markets such as Paris, London and Brussels will hit a cyclical high in terms of new construction, but the same cities report vacancy rates that are lower than the pre-recession level,” said Elisabeth Troni, the research and analysis director for the EMEA at Cushman & Wakefield.

Some completions are expected to be postponed due to Brexit-related uncertainty. Office rents will rise most rapidly in Madrid, Berlin and Stockholm, followed by Frankfurt, Milan and Budapest

“A lot of new office projects are underway or are planned in Warsaw to meet the high demand in the lease market. In the past 18 months over half a million sqm of office space has been handed over, which is a 10 pct rise in supply (from 4.66 mln sqm at the end of 2015 to 5.12 mln sqm in Q2 2017). At the moment app. 720,000 sqm is under construction, a number which is approximately equivalent to the five-year average. That proves that Warsaw’s office market is stable and will see healthy annual supply over the next three years,” says Kamila Wykrota, the consulting and market analysis director at Cushman & Wakefield Poland.

Europe Key Facts

Berlin and Munich will have the second- and third-lowest vacancy rates in the world by 2019, at 3.1 pct and 3.3 pct, respectively.

Over the next three years, the number of development completions is expected to increase significantly in Istanbul, London, Brussels, Vienna and Dublin. In fact, over 2017-18, Istanbul, Copenhagen and the City of London will see the highest level of completions so far this cycle.

On the other end of the spectrum, in Stockholm, Amsterdam and Helsinki, less than 2.5 pct of stock is expected to be completed in the near term, offering stronger potential rent growth and lower vacancy.

Budapest, Dublin, Copenhagen and Madrid expect to have the strongest growth rates in the office-reliant information and communications sectors.

Brexit-related uncertainty is expected to inhibit office-based job growth, but vacancy in London is still expected to remain tight, under 5 pct.


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