There will be over 65 million sq. m of office buildings erected by the end of 2019. This number is equivalent to the resources of office space in five cities: Washington, Dallas, London, Singapore and Shanghai. The demand will be maintained at a high level in subsequent years. According to the forecasts, it will amount to over 45 million sq. m. However, the vacancy rates in most cities will increase due to the significantly increased supply. Therefore, we can assume that there are too many buildings in the world right now.
On the other hand, this new supply is not excessive. According to the market data, tenants generally prefer new high quality space than older office buildings. Hence, developers who deliver high class buildings to the market in this cycle could count on a significant increase from investments, even on the markets where the vacancy rates are still really high. What is more, the increased demand for office space is favored by the acceleration of global economy and low interest rates.
Undoubtedly, developers pin their hopes on new investments and the majority of them are located in the largest cities in the world where the demand for new shining office buildings is currently maintained at the highest level. I am not afraid of lease of new space because the offered supply satisfies both the demand and the tenants’ expectations, however, I am concerned about the results of the current supply wave for office buildings of lower class – they can have some problems in the competition for tenants – says Kevin Thorpe, Chief Economist of Cushman & Wakefield.
The highest share in the increase of developer activity will be recorded in the Asia-Pacific region (especially in China). There will be nearly 60% of new supply globally in this region.
The office markets in North and South America are still developing very dynamically, however, the construction activity can slightly slow down after 2017. Nevertheless, there will be more and more office space in USA, Canada and Latin America in subsequent years than these markets will be actually able to absorb.
The number of offices under construction will also increase in Europe, however, at a much slower pace than in other regions. Some key office markets, including Paris, London and Brussels, will be in the highest phase of the developer activity cycle in the next two years, but the vacancy rates will be maintained at the lower level than before the crisis.
The time limit for the completion of some projects can be changed due to the caution of developers resulting from insecurity related to negotiations of the exit of Great Britain from the European Union. The rents for office space will increase faster in Madrid, Berlin and Stockholm, whereas the top ten cities with the most dynamically increase of rents are: Frankfurt, Milano and Budapest. The balance on the European markets will favor another phase of this cycle – says Elizabeth Troni, Head of the Research Group in the EMEA region, Cushman & Wakefield.
In Warsaw, there are many new office investments under construction due to the high demand on the market. More than half a million sq. m of office space were commissioned within the last 18 months, which constitutes an increase of supply by as much as 10% (from 4.66 million sq. m at the end of 2015 to 5.12 million sq. m in Q2 2017). At present, there are ca. 720 thousand sq. m under construction, that is about the five-year average. This proclaims that the metropolitan office market as well as the level of annual supply in the next three years will be stable – says Kamila Wykrota, Head of Consultancy Department and Market Analyses, Cushman & Wakefield in Poland.