DALLAS – (By Dale King) – An “unprecedented office building boom” is now under way across the globe, with more than 700 million square feet of space now under construction; offices that should be completed by the end of 2019, reports Cushman & Wakefield’s Global Office Forecast.
Dallas is at the forefront of the blitz. In fact, Big D “is projected to rank No. 1 in office completions in the Americas, at 20.5 million square feet.” Worldwide, Dallas ranks No. 7 for office completions, behind booming cities like Beijing and Shanghai.
The document questions whether such a vast amount of office space constitutes overbuilding. The total is equivalent to recreating five cities worth of office inventory – Washington, D.C., Dallas, London, Singapore and Shanghai – over the next three years.
“Although demand, as well as job growth, will remain healthy through 2019, totaling approximately 520 million square feet, it will fall far short of supply, which will cause vacancies to rise in most cities around the world. From that perspective, the world is overbuilding,” says the report.
“Or, not,” the document adds, paradoxically. “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 percent of all office absorption since 2012.”
As to employment among U.S. metros, Dallas is expected to rank No. 2 in total office jobs created between 2017 and 2019. Globally, it’s anticipated Dallas will rank No. 14, with 92,700 new office jobs created between 2017 and 2019. From 2014 to 2016, Dallas came in at No. 13 globally, with 98,000 new jobs created.
As to speculation about overbuilding, Dallas, for the most part, seems to be on fairly solid ground. Some weakness is projected in the areas of rent growth and vacancy rate.
“The market has seen strong rent growth—nearly 10 percent between 2014 and 2016,” said Curtis Hornaday, Dallas market research director for Cushman & Wakefield. “Over the next three years, that is expected to drop and stabilize to a projected growth of 1.5 percent from 2017 to 2019.”
“Vacancy in Dallas is expected to increase during 2017-2019,” he said, “due to the wave of continuing office construction.”
In addition, Hornaday said, “Dallas/Fort Worth’s projected job growth of 92,700 puts us No. 2 in the country, and just a few thousand jobs behind New York City, which is nearly twice the size of Dallas.”
Kevin Thorpe, global chief economist at Cushman & Wakefield, says developers are stepping up to the plate to meet growth head-on. “They are certainly placing some big bets on new product, but the bulk of it is concentrated in the major global cities, precisely where the greatest appetite is for these shiny new buildings.”
“I’m less concerned about the new space leasing up, because, in a sense, that is supply rushing to meet demand,” Thorpe added. “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.”
“We are incredibly fortunate in Dallas to have a deep stable of entrepreneurial, incredibly well-funded developers like Hall Group, Billingsley Co., KDC, Trammell Crow Co., Van Trust, Ross Perot Jr., Granite Properties and Jerry Jones,” said Randy Cooper, vice chairman of Cushman & Wakefield in Dallas.
“They have land in inventory ringing the city. And they can rely on internal financing. In other markets, developers will have to find the land, tie it up, and then line up external financing. That could take months. I’ve seen developers in Dallas line up the financing in less than an hour. That is a huge factor in the relocation growth we continue to experience.”
The development boom will be led by Asia Pacific, particularly Greater China, says the study. In fact, nearly 60 percent of the world’s new construction will be concentrated in the Asia Pacific region. Within that area, new supply is concentrated in a handful of markets: Beijing, Shenzhen, Shanghai, Manila and Bangalore. Those five markets account for 55 percent of construction in Asia Pacific and more than a third of construction worldwide.
The development pipeline is also ramping up throughout Europe, but not nearly to the same degree. Some European cities, such as Paris, Vienna, London and Brussels, will hit a cyclical high in terms of new construction over the next two years, while Madrid will show steady growth amid global deceleration of rental-rate growth.
The Americas region is also enjoying 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.
Other findings in the report include:
- The top five markets for office-using job growth in the U.S. over the next three years will be New York, Dallas, Los Angeles, Atlanta and Chicago. Washington, D.C. Metro and Phoenix also make notable upward moves in job growth.
- In the U.S., it is mostly secondary markets that will lead the country in rent growth over the next three years, led by: Seattle (+6.8%), Raleigh-Durham (+4.8%), Oakland (+4.2%), and Portland, Ore. (+4.2%).
- Brexit-related uncertainty is expected to inhibit office-based job growth, but vacancy in London is still expected to remain tight, under 5%.
- Beijing will lead the world in both supply and demand growth over the next three years.
- Sydney will have the lowest vacancy rate in the world by 2019, at 2.4%.