Global Office Forecast: Is the World Overbuilding?

HONG KONG, CHINA - Media OutReach - August 2, 2017 - Across the globe, an unprecedented office building boom is underway with more than 700 million square feet (MSF) of space under construction that will deliver over the three-year period from 2017 to 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 approximately 520 MSF, 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% 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, Cushman & Wakefield Global Chief Economist. "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% 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 Bengaluru. Indeed, those five markets account for 55% 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.

"Nearly 200 MSF of new office supply is expected to enter China's four Tier-1 cities, Hong Kong and Taiwan over the next three years," said James Shepherd, Cushman & Wakefield's Managing Director, Research, Greater China. "The new projects will replace existing lower-quality buildings and raise the profile of China's Class A office market," Shepherd added.

Catherine Chen, Cushman & Wakefield's Head of Forecasting, Research, Greater China notes: "According to our econometric forecasting model, the average vacancy rate of the six major office markets -- Beijing, Shanghai, Guangzhou, Shenzhen, Hong Kong and Taipei, is expected to increase to 17% by the end of 2019; and at the same time, we will likely witness continued strong office absorption totaling around 133 MSF over the three-year period." 

Greater China Key Facts

• New business districts are under development in cities in Greater China, with the majority of upcoming office projects being located in decentralized or emerging areas. Examples of these emerging CBDs include Qiantan in Shanghai, Qianhai in Shenzhen, Pazhou in Guangzhou and Kowloon East in Hong Kong.
• Mainland Chinese companies account for 78% of office leasing demand in Tier-1 Chinese cities, and in 2016 nearly doubled their annual share of new leases or expansions in Hong Kong to approximately 60%.
• Shenzhen and Guangzhou expect impressive job growth due to the rise of fin-tech and eCommerce. That is further supported by the Chinese government's new "Greater Bay" plan to press forward with development of a city cluster in the Guangdong-Hong Kong-Macao Greater Bay Area, which includes Hong Kong, Shenzhen and Guangzhou.

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help occupiers and investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. 2017 marks the 100-year anniversary of the Cushman & Wakefield brand. 100 years of taking our clients' ideas and putting them into action. To learn more, please visit www.cushmanwakefield.com.cn or follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china