14 December 2010, Hong Kong – 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 Office Development Cycle: Where are we now?

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 strong corporate and investor confidence in Asia, excluding Japan, which has emboldened developers in some of the region’s largest office markets to reactivate projects which had been delayed or halted during the downturn.

Of the 293.3 million sq ft of office space expected to be completed in the leading global office markets between 2010 and 2012, some 65 per cent, or 190.6 million sq ft, is set to come on stream in Asia. About 24 per cent, or 69.1 million sq ft, is slated for completion in the business hubs of Western Europe; whereas just 8 per cent, or 23.1 million sq ft will become available in North America and 4 per cent, or 10.5 million sq ft, is in the pipeline in the Pacific.

“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 centre 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 North American and Western European counterparts directly translates to higher rates of new construction relative to the norm established over the past decade. As manifested by office development completions 2010–2012 calculated as a percentage 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%).

“Since the turn of the new millennium, the world’s advanced economies have begun to lose their pre-eminent position in the global financial markets and the power of the world’s emerging economies has soared,” commented Andrew Ness, Executive Director of CBRE Research Asia. This shifting global axis has already begun to impact on how international companies position themselves, and how and where they place key personnel and resources. Within Asia, this has also spurred the growth of indigenous corporate giants, who themselves have growing requirements for office space. This shift in corporate activity directly reflects the changing regional focus of office development, especially since the global economy has begun to emerge from the financial downturn.”

Analysed by region, the report forecasts that the office development cycle in Asia is likely to be markedly different than that which will be witnessed in the other three regions producing the equivalent of approximately 63.5 million sq ft per annum. This surge in activity will push average completions during this period to a level about 50 per cent higher than the average of 42.2 million sq ft delivered annually over the past nine years.

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 Eurozone 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. The region will witness the completion of just 69.1 million sq ft of new office supply within this timeframe, equivalent to 23.0 million sq ft per annum, a 30 per cent drop over the average of 32.9 million sq ft per annum delivered over the past nine years.

Richard Holberton, Director, EMEA Research, added, “London is currently the only major Western European market where reviving interest in development looks likely to produce a significant upturn in new construction activity over the coming year. Prime rents in the City have rebounded strongly from their 2009 low and the scarcity of new supply completing during 2011-12 is supportive of further rental growth and the prospects for pre-letting of new schemes. A key influence on the pace of activity will also be the availability of finance. Elsewhere in the region, there are isolated examples of renewed interest in development, but these mostly reflect building-specific circumstances rather than a general pick-up in market momentum. “

North America, arguably the epicentre of the global economic downturn, will see only 23.1 million sq ft of office space completed within the 2010-2012 period, or less than 8.0 million sq ft per annum, a 70% drop compared with the average of 25.9 million sq ft per annum recorded in 2001-2009. The Pacific, whose office development cycle is buoyed by its strong economic links with Asia, will see 10.5 million sq ft, or about 3.5 million sq ft per annum, the equivalent of a milder drop of about 15 per cent from the average of 4.1 million sq ft per annum recorded during 2001-2009.

Download the Global Office Development Cycle Special Report here