The focus of global office development activity has shifted to Asia as the world economy emerges from the severe financial downturn, according to new research from CB Richard Ellis (CBRE) Global Research and Consulting.
Only Asia among the four major global regions - Asia, Western Europe, North America, and the Pacific - will witness significant growth in office completions in 2010 and 2011, before slowing to a still slightly higher-than-normal level in 2012.
This high rate of office development reflects the strong corporate and investor confidence in Asia, excluding Japan. This confidence has emboldened developers in some of the region's largest office markets to press on towards completing projects which had been delayed or halted briefly during the most severe part of the downturn.
Of the 293.2 million ft² (approx. 27.2 million m²) of office space expected to be completed in the leading global office markets between 2010-2012, some 65%, or 190.6 million ft², is set to come on stream in Asia. About 24%, or 69.1 million ft² is slated for completion in the business hubs of Western Europe; whereas 8%, or 23.1 million ft² will become available in North America and 4%, or 10.5 million ft² will be in the pipeline in the Pacific region.
"Globally, office markets are strongly cyclical in nature," said Raymond Torto, Global Chief Economist, CBRE. "The long lead-in time for the construction of city center office buildings frequently means that peaks in construction completions coincide with downturns in demand."
The fact that Asia's leading economies, ex-Japan, are currently at a more advanced stage within their business cycle compared to their counterparts in North America and Western Europe directly translates to higher rates of new construction in this region relative to the norm established over the past decade. As manifested by office development completions 2010 2012 calculated as a percent of year-end 2009 stock, Asian office development (27.9%) has by now fully resumed after slowing down briefly in the wake of the global economic downturn,. Other regions, in contrast, are experiencing either slightly below normal completions, such as the Pacific (7.3%), or relatively scant completions, such as Western Europe (3.7%) and North America (1.2%).
A series of shocks over the past three years, including the outbreak of the sub-prime crisis in 2007, the global economic downturn in 2008/2009 and the euro zone debt crisis in spring 2010 led to many office developments in Western Europe being mothballed, as evidenced by the declining trajectory of completions forecast for the 2010-2012 period. Western Europe will witness the completion of just 69.1 million ft² of new office supply within this timeframe, the equivalent of 23.0 million ft² per annum and a 30% drop over the average quantum of 32.9 million ft² per annum delivered over the past nine years.
Gábor Borbély, CEE analyst at CBRE Budapest added: "Heavily influenced by the lack of finance and the aftermath of the economic crisis, development markets show diverse pictures across the region. Markets are in different stages on the development curve with Moscow and Prague seeing already increase in office deliveries in coming years. On the other hand, new supply in Warsaw and Budapest will be close to historic lows until 2012 at least."
"Development pipeline in the Hungarian capital is down by almost 50% in 2011 compared to 2010. Next year approximately 90,000 m² of new office space will come to the market, and most of it is already pre-let. Currently the vacancy rate of the projects under construction stands at approximately 30% and this low level of future new supply makes room for new developments. Although a few developers including Atenor, Skanska or Raiffeisen already announced new projects for 2012 we believe that the amount of new office space in 2012 will remain similarly low as in 2011," said Rita Tuza office market analyst at CBRE Budapest.
The Officium Irodaház is one of the few new real estate developments under completion in t
