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Tuesday, September 18, 2018

Flexible Workspace - Survival of the Fittest

By Rand Stephens (Houston)

Co-working space, flexible offices, hot-desking, shared-open offices, communal office space – just a few buzzwords used to describe the latest trend to hit the office market that is appealing to tenants such as freelancers and startups because it provides flexible workspace and flexible lease terms. It’s also beneficial to larger companies in terms of “swing” space, providing easy options for the companies to ramp up or downsize, as needed. As the momentum continues, co-working companies will ultimately compete for supremacy. They will take on more space than demand warrants -- which may lead to a collapse, leaving a few survivors. Building owners need to be cautious about having too much exposure to co-working locations as tenants.

The new buzzwords are gathering a lot of attention, but the concept has been around for quite some time. Long before WeWork, there was Regus, which has an executive suite setup. Today’s co-working companies are a modernized version with upgrades and nuances that create a more collaborative work place. Regus had a successful run in the late 1990s, alongside the dotcom boom. (We all know how that ended.) It eventually fell victim to the economic downturn and was left with an over-supply of office space and was forced into Chapter 11. However, Regus (now IWG) survived and remains in business today with more than 40 locations in the Houston area and the largest flexible space provider in the country. Do today’s co-working companies have long-term staying power? Can they survive an economic downturn?

Courtesy of WeWork, Houston Galleria
There are an estimated 100-plus flexible working space companies in Houston that likely make up less than 1% of total office space inventory. Given the undersaturated market, there is potential for growth in the Bayou City. WeWork has two locations with a combined estimated 142,000 sf. Other newcomers include Reth!nk, slated to open its 42,000-sf space in Houston’s Midtown Arts District in spring 2019. Austin-based FirmSpace will take up 2 floors at 2200 Post Oak Boulevard for a total of 32,872 sf by the end of 2018, and Work Well, opened by Houston-based development company Caldwell Cos., has 23,000 sf at 13100 Wortham Center Drive in northwest Houston.

Whether the flexible space trend will continue to accelerate and assimilate into the office market landscape remains to be seen. Landlords may still want to take a cautious approach to making long-term investments with co-working companies. As with most new ventures, there is fierce competition within the market to rise to the top. There were winners and losers from the dotcom bust of the 1990s. Survivors that continue to thrive include Amazon, Priceline and Ebay. Will WeWork and Regus continue to dominate the co-working industry? We shall see.

(Rand Stephens is a Principal of Avison Young and Managing Director of the company’s Houston office.)

Monday, September 10, 2018

Ecology and Economics Should (and generally do) Go Hand in Hand, and 5 Reasons Why Property Owners Need to Care about the Demise of the EPA

by Amy Erixon, Toronto

Great Recession of 1980 – Quarterly GDP 

When I began my commercial real estate career in 1979 the economy was rapidly falling apart.  Inflation moved through the teens; and interest rates, which started at 8%, finished off the year at 20%. These policies, designed to combat runaway inflation (due to the oil supply shock, removing wage and price controls and taking the US dollar off the gold standard), caused an extremely long and deep recession, lasting 3 years. (The 2008 recession lasted half as long). These conditions were destroying the banks, builders and material subcontractors indiscriminately.  

As grim as this situation was, I had a more serious threat unfolding in my Boston office portfolio: 6 x 24 feet concrete and granite panels weighing many tons were falling off the high-rise office buildings, creating life threatening street hazards.   Acid rain from mid-west coal furnaces and factories was dissolving the steel clips that secured the panels to building structures - 800 miles away.  Here is an image of the impact that same rain had on nearby on food crops and drinking water. 

Thankfully, today few people remember the conditions under which President Richard Nixon established the Federal Environmental Protection agency in 1970.  To begin the important work of finding alternative, less environmentally destructive, forms of energy production President Jimmy Carter (himself a nuclear engineer) established the National Renewable Energy Laboratory (NREL) and Solar Energy Research Institute (SERI) in Golden, Colorado in 1977.  These initiatives were well funded by 5 subsequent administrations from both political parties, and those investments have paid off.  Solar and Wind technology has reached the point where these sources cost half as much as producing energy with coal.  Pollution is a major problem in much of the world today.  But instead of capitalizing on the success of decades of research and forward-looking policies by promoting clean energy, the US seems to have all but forgotten about the need for vigilance against the known dire consequences of burning coal and polluting the water supply. 

Despite the passage in 1948 and 1955 respectively, of the Federal Water Pollution Control and the Air Pollution Control Acts, in the decades that followed state enforcement was ineffective. In 1969 the Cuyahoga river in Cleveland literally caught on fire.  By 1973 the everglades were also burning,  (see image at left).    
Everglades Fires, 1973
Recognizing that water and air do not limit themselves to state (or even country) lines, President Nixon called for a more comprehensive and cost-effective solution - federal oversight.    It was clear that states were grossly underfunded and are unable to meet the challenge of managing pollution originating from sources beyond their jurisdiction. 

Forty-eight years later, the Trump administration is proposing returning air and water pollution oversight to the states; and has repealed critical environmental protections such as:  prohibiting polluting water supply headwaters with mining effluent; ignoring contamination risks to aquifers and other key bodies of drinking and recreational waterways from fracking and pipelines; setting aside consideration of human risks from lung diseases caused by 189 known  ”deregulated” carcinogens and poisonous airborne chemicals being newly released via factories, farms, and tailpipes.   The stated rationale for such ill advised policies is “restoring” economic prosperity, as though ecology and economics are adversaries instead of partners.    This is not the way to achieve either objective. 

Is the EPA infallible? Of course not.   But over my career I have completed environmental assessments for approximately 40 million sf of development entitlements in the US across 4 regions., and accommodating EPA concerns was never an issue.   There are at least 5 reasons why real estate owners, insurers, business leaders and voters need to care about the continuation of the fight against environmental impairment.  

  •           Environmental quality affects our health, lifespan and our productivity - directly.  Administration documents acknowledge likely adverse health effects from its new coal provisions will likely lead to an additional 1500 deaths annually and 50,000+ person increase in suffering from lung disease of all kinds – asthma, emphysema and cancers.   No estimates have been developed regarding drinking water or airborne toxin risks, because human risks are no longer being assessed in these determinations. 
  •           Property values are directly affected by quality of life considerations including health, safety, recreational access and lack of environmental contamination.  Tourism is directly impacted by environmental problems from fires to pollution alerts.   If you have ever acquired a contaminated property and attempted mitigation of an off-site source contaminant, you have some sense of the valuation and liquidity impairment this entails, and complex mitigation difficulties presented by this situation.   Today, superfund proceeds are available to remediate hazards left by a defunct perpetrator organization, but what happens when the government authorizes companies to return to these polluting ways.  Buyer beware!
  •          While ecological conditions are markedly better than in 1970, as recently as 2016, 10 people died and 87 developed Legionnaires disease from lead and bacteria in the drinking water in Flint, Michigan.  Congress passed the Safe Drinking Water Act in 1974, under which the EPA establishes water quality standards and funds local water protection programs, whose safety, (underfunded) is far but ensured.  Trump administration officials have proposed abolishing the funding for safe drinking water programs.   Building owners can be sued if these sorts of health hazards develop in our buildings.  Shifting the burden of continuous water quality testing to owners, who have no jurisdiction to do anything about the public water supply makes no sense and is likely to also increase the cost of insuring our properties. 
  •          Recent studies from the Harvard School of Public Health, among others, underscore the major improvements to cognitive function healthy buildings can provide.    These findings suggest that urban fresh air has a long way to go before it can be considered “healthful”.  “Fresh filtered air” inside high performance buildings has been shown in academic studies to increase alertness, reduce absenteeism and 9 other health benefits from 20-80%, depending on the parameter studied.  Since air quality is sure to suffer further from the current regulatory repeals, investing in air filtering systems becomes all-the-more imperative. 
  •           While the burning of coal is unlikely to increase in America due to the fact it is no longer cost competitive, the loosening of regulations regarding effluents and pollution means three possible outcomes – later phase out of coal fired plants; possible return of the ill effects of acid rain; and future grid disruption as conscientious owners move to renewable energy sources to protect their investment portfolios. 
These are not trivial concerns.  According to the Harvard Law School’s Environmental Regulation Rollback Tracker, and Columbia Law School’s Climate Deregulation Tracker - as confirmed by the Brookings Institution, the US Chamber of Commerce and the EPA: since taking office 20 months ago, the Trump administration has reversed, diluted or repealed 76 significant environmental rules that Canadians and Americans should be worried about, such as limits on toxic discharge, including mercury, a known neuro-toxin and carcinogen, from power plants into public waterways. 

Lac Megantic train derailment fire
  More than 1600 EPA staff have resigned, and public safety appears to be a major loser in these repeals, as epitomized by reversal of the low-cost rule requiring braking system upgrades to trains carrying highly inflammable fuels, such as fracked oil (this law was passed by Congress following the Lac-Megantic, Quebec disaster; (image left).   Other unconscionable acts include overturning bans on harmful pesticides known to cause birth defects, respiratory ailments and cancer; and downgrading of safety standards for 189 hazardous airborne chemicals, such as benzene, dioxin and arsenic; all of which can work their way into Canadian communities via the Great Lakes, the jet stream and weather patterns.

The point is, like other residents of Canada, I am not immune to health risks stemming from repeal of pollution and safety regulations in America.  Just this morning the authorities in Canada reported banned pesticides are turning up in common Canadian food products, due to cross-border ingredients.   It happens fast and unfortunately, the effects of ingested poisons are often cumulative.  

Congress is currently in the process of confirming Judge Kavanaugh to the Supreme Court.  He has a track record of aggressive judicial activism to curb authority of the EPA.   Current and future generations of North Americans need an EPA that does a competent job of executing regulatory enforcement and achieves a win-win solution.  Ecology and economy must, and generally do, go hand in hand.    

Wednesday, September 5, 2018

Do banks need advice on selling foreclosure properties?

By Janko Pahlitzsch (Berlin)

The world´s economy is booming and modern living and commercial spaces are in short supply.

But do investors really need advice regarding foreclosure/forced sales in Germany and other countries nowadays?

The problem we face today is that demand for space is much higher than what the market can provide. Most development projects underway are presold or preleased before they are even built.

Low interest rates – in other words, cheap funds to borrow – are widely available, and real estate investors are on the hunt for assets all over the world, inflating market prices.

During the global economic crisis in 2008, more than 55.000 court-ordered foreclosure auctions/forced sales of real estate properties occurred in Germany alone. This figure has decreased significantly, to an estimated 20.000 this year.

However, my answer to the question of whether investors need advisory services regarding forced sales and insolvency is yes!

Yes, there is high demand for advising banks and insolvency administrators throughout Germany, and elsewhere, on properties that do not seem to be the preferred choices of national and international investors.

Vacancy, capex, short-term leases, taxes and legal issues are just a few factors that explain why investor interest cools down quickly. But that’s the type of real estate where we don’t give up – and can verify an added value. There are tailor-made solutions for each problem.

These properties still can be sold by virtue of the best market conditions available now.

I would like to point to the example of a property in Mainz-Hechtsheim, Germany, which Avison Young is listing exclusively on behalf of a bank. It is a commercial property that will be sold by the trial court of Mainz on September 27, 2018. The light-industrial, flex-office building will be vacant February 1, 2019 – a factor that is supposedly the reason for a low number of prospective buyers thus far. However, through our multi-channel strategy, we already found several parties interested in renting space in this building close to Germany´s biggest airport, Frankfurt am Main.

We are trying to stabilize rental revenues by deploying a multi-tenant leasing strategy as opposed to a single-tenant leasing strategy.  In other words, we are not just trying to provide a space for a prospective buyer. We are also seeking several prospective lessees to protect the value of the investment while saving the investor time, effort and money. This strategy has worked for the property, located on Carl-Zeiss Strasse in Mainz-Hechtsheim, quite well so far. We have already found prospective lessees who are interested in signing long-term tenancy agreements, and negotiations are proceeding with potential new owners before the September 27 auction date.

This success story is just one example of how strategic advice regarding foreclosure/forced sales can pay off for banks, insolvency administrators and investors in Germany – and throughout the world.

(Janko Pahlitzsch is an Associate Director in Avison Young’s Berlin office with 13 years of commercial real estate investment sales experience. He specializes in advising banks and insolvency administrators on foreclosure/forced property sales throughout Germany.)

Friday, August 31, 2018

Are open office layouts hindering collaboration?

By Dominic Perkovic (New York City)

Office co-working space has garnered much attention recently. Through the first half of 2018, co-working made up 10% of all leasing activity in Manhattan. The previous year, co-working space accounted for just 3% of overall leasing activity in the borough, as reported in Avison Young's Second Quarter 2018 Manhattan Office Leasing Snapshot Avison Young's Second Quarter 2018 Manhattan Office Leasing Snapshot . WeWork completed two deals in the 30,000 to 45,000-square-foot (sf) range while Knotel signed five deals in the 13,000 to 45,000-sf range.

                                                                                     Source: Stockphoto LP

WeWork, the behemoth co-working company valued at $20 billion, has no desire to slow down its expansion as it moves into development, leasing, and property management services.  Amidst the expansion, WeWork is in talks with SoftBank for a potential investment that could double the firm's valuation to $40 billion.

With companies like WeWork and Knotel taking up large swaths of square footage in New York and across North America, it is safe to say that co-working development once considered a fad, has become mainstream. Co-working space lease activity shows no sign of slowing down, but does a co-working environment actually do what it is intended to do?

The rationale behind open plan office layouts is that they increase connectivity between workers by breaking down barriers. A lack of cubicles and partitions should, in theory, increase engagement between workers, allowing for more teamwork and higher levels of productivity.

                                                                                    Source: iStockphoto LP

Knotel, the new kid on the block, began its ascent in 2015.  Today, the firm has grown to more than 40 locations in New York, San Francisco, and London.                                                                           

A new Harvard Business School study  demonstrates that, in fact, the opposite occurs. Examining the employees of two Fortune 500 companies, researchers discovered that face-to-face interaction decreased approximately 70% following the adoption of open layouts. Meanwhile, e-mail use increased 22% to 50%. Fifteen days before the office redesigns, participants averaged approximately 5.8 hours of face-to-face contact. After the switch to an open-office layout, participants’ face-to-face contact dropped to approximately 1.7 hours on average. To make matters worse, executives reported, productivity (as defined by the metrics used by the firms’ internal performance-management systems) declined after the office-layout redesigns. Instead of increasing collaboration, it seems, open office layouts trigger a natural response to withdraw socially from colleagues due to a lack of privacy. Despite the study’s limited sample size, these results are compelling. 

This is the first study that empirically measures both face-to-face and electronic contact before and after a company’s adoption of open-office architecture. Co-working environments are relatively new; and as time moves on, more research will emerge on their feasibility.

What is your take on open architecture in the workplace? 

(Dominic Perkovic is an Associate based in Avison Young’s New York office. He specializes in office real estate advisory and transaction services.)

Wednesday, August 29, 2018

Canada’s office sector: Technology and co-working craze augment traditional demand drivers.

by Bill Argeropoulos (Toronto)

Canada’s office property markets remained sound through the first half of 2018, supported by stable macroeconomic indicators, including healthy employment numbers, GDP growth and a rebounding Alberta economy. The overheated housing market, which had concerned some observers, is now cooling thanks to the implementation of new federal and provincial measures. On the other hand, U.S. protectionist policies and escalating tariffs pose a risk to the Canadian economy and global trade flows and may lead to moderating growth ahead. 

Intense competition for office space continues to bolster office market fundamentals across Canada – especially in downtown markets. Demand from traditional sectors is being augmented by the proliferation of domestic and global technology and co-working firms, ongoing urbanization and a burgeoning millennial workforce – all part of Canada’s emerging innovation economy.

Overall office vacancy rates declined in more than half of the Canadian office markets surveyed with suburban markets outpacing downtown markets in terms of absorption (led by Montreal and Vancouver) and new deliveries (led by Toronto, Vancouver and Montreal) during the past 12 months. However, the amount of downtown space under construction at mid-year (led by Toronto) outstripped the suburbs by a significant margin. Toronto and Vancouver are outperforming the country’s other markets in almost every metric.

Urbanization – partly attributable to growth in the technology sector – has created a noticeable gulf between downtown and suburban vacancy rates in emerging tech hubs such as Vancouver, Toronto, Waterloo Region, Ottawa and Montreal.

Aside from Edmonton and Calgary, the nation’s suburban markets expanded by varying degrees with strong results in Montreal and Vancouver. Outpacing downtowns, suburban markets combined for positive 12-month absorption of nearly 3.4 msf – slightly behind the previous 12 months’ pace. Suburban vacancy fell 50 bps during the year to close first-half 2018 at 13.1%. Though double-digit vacancy prevailed in all but two suburban markets, six of 11 suburban markets recorded lower vacancy levels year-over-year – with Winnipeg being the tightest (5.5%).

Most downtown markets posted positive results, combining for more than 2.2 msf of absorption in the 12 months ending at mid-year 2018 – led by Toronto, Vancouver and Edmonton. Consequently, Canada’s downtown vacancy rate declined 80 bps year-over-year to reach 10.5% at mid-year 2018. Vacancy was lower in seven of 11 downtown markets; four remained in single digits and below the national downtown average, while Toronto (2.2%) registered the lowest downtown vacancy – not just in Canada, but North America.

Given tight conditions and upward pressure on rents in some of the nation’s downtown markets, and with little or no near-term supply relief, suburban markets – particularly those offering transit connectivity and other urban amenities – may be the beneficiaries of overflowing tenant demand during the next couple of years.

For additional insights into the Canadian office market click here:

(Bill Argeropoulos is an Avison Young Principal and the firm’s Canadian Research Practice Leader. He is based in the company’s global headquarters in Toronto.)

Higher Quality, Smaller Footprint

By Rand Stephens (Houston)

Despite Houston’s thriving economy and low unemployment rate, the city has one of the highest office vacancy rates in the country. The office vacancy rate for the second quarter of 2018 is at 18.3% (includes sublease’s available vacant space), which hasn’t been that high since the 1980s. With almost 40 million square feet of direct vacant space currently unoccupied in the Houston area, why are we seeing an increase in activity for new office development? And, why are employers opting to move to these new buildings?  There is a workplace revolution underway and companies are responding.

Employers are competing to attract and retain top talent by offering flexible work options, in-house fitness centers, cafés and outdoor patios because studies have shown that is what employees want. Research also shows that employees are spending less time working at their desks and more time in kitchens, conference rooms and other collaborative areas. This trend is influencing office space design and impacting the amount of space being leased. Employers now have an opportunity to save money on office space by designing collaborative amenity-rich work environments with less square footage per employee while scoring the best and the brightest members of the workforce.

This trend is sparking an increased demand for superior space, and companies are leaning toward newer more efficient buildings with state-of-the-art interior design to capitalize on the shift in employees’ demand for a better workplace experience. However, the overall space needed ends up being smaller, resulting in a better value for the employer. This is not only happening in Houston, but a trend that is happening around the country, as noted in Avison Young’s Mid-Year 2018 Office Market Report.

This flight-to-quality is driving some demand for new office buildings. It’s not obvious that this would be the case in a market with an abundance of available space, but Houston’s class A building set is primarily 1980’s vintage.  So, if a company can move to a new high-quality building to satisfy its employees -- while reducing its space per employee --then it looks like an attractive solution.

Some new upscale projects underway in Houston include Skanska’s Capitol Tower at 811 Rusk St. and Hines’ 47-story tower on Texas Ave. Capitol Tower’s soon-to-be tenant in 2019, Bank of America, has preleased 210,000 sf –  that’s a 77,000-sf decrease from their previous offices. Vinson & Elkins will also be decreasing their office footprint from 338,920 sf at First City Tower to 212,000 sf at the new Hines building. United Airlines left their 360,000-sf dual offices to a consolidated 225,000-sf office at 609 Main. Preleasing these new projects and renovating heritage buildings is key to stabilizing the Houston office market, as high-profile tenants continue to vacate their older office buildings and opt for newer, modern buildings. As the workplace environment adapts, so will the office market.

 (Rand Stephens is a Principal of Avison Young and Managing Director of the company’s Houston office.)

Sunday, August 26, 2018

GTA industrial prices will remain strong

By Richard Chilcott and Jonathan Yuan (Toronto)

How hot can it get?

Through the 1990s and early 2000s, the Greater Toronto Area (GTA) industrial market was balancing supply with demand. Following a robust market performance throughout the past few years, rents and property values kicked into overdrive during the first half of 2018. The GTA’s industrial leasing market has experienced record demand, leading to historic-low vacancy and, percentage-wise, double-digit rental-rate growth. Strong market fundamentals and the prospect of further rental-rate growth have driven up demand from all investor types (institutional, private, condo developers and users), leading to further compression in industrial cap rates and new highs in land value.
Inventory in the GTA industrial market stands at approximately 874 million square feet, including all classes of space. This number represents just shy of half the industrial space in all major markets in Canada combined.  The GTA is the fourth-largest industrial market in North America, behind only Chicago, Los Angeles and Philadelphia. Through the last two decades, regional industrial investors and tenants have experienced near-flat returns in terms of rental-rate growth as a result of product demand being in equilibrium with supply.

GTA industrial stock currently boasts a 1.6% vacancy rate. Together, regional population growth, shifting distribution and retail trends have created extremely strong demand for small-, mid- and large-bay warehouse/distribution-centre space. At the same time, supply of new product has been constrained by restricted availability of developable land, higher development charges and, until recently, a lack of economic rents capable of encouraging development of anything other than distribution centres.

The Greenbelt surrounding most of the GTA and the competing economic powerhouse of residential development have created a scarcity of developable land near large population centres. Industrial land in prime locations has achieved prices above $1.9 million per acre, while a significant market-rent increase throughout the region has not yet provided enough of a driver to counteract land and construction costs for mid- and small-bay product. Retail shopping trends are attracting more and more buyers online with a knock-on demand for warehouse space and last-mile distribution locations a short drive from consumers in urban areas. Larger distribution-centre product has been leasing well with rental rates pushed high enough for developers and institutional investors to add a steady supply of new product. Municipalities across the region continue to increase development charges well above the inflation rate. As a result of increasing construction and land costs, we will need to see even more rental-rate growth to encourage developers to satisfy demand across the sector.

When it comes to investment in industrial properties, rapid rental-rate growth is driving investor valuations, pricing in future market rents today.

Owner-users continue to play a significant role in higher-price-per-square-foot transactions. This group can rationalize its pricing metrics by comparing the gross leasing cost of occupancy with the cost of ownership and the ability to build personal wealth over time through capital acquisitions. It remains to be seen whether recent debt-cost increases will affect owner-users. Users seeking to buy smaller units have turned to the burgeoning industrial-condo market, where vendors are, in some cases, requesting prices near $400 per square foot. Will Vancouver-type pricing be seen in the GTA next? And, will we see more efficient use of land with multi-storey industrial units in this market following their emergence elsewhere in recent years?

Given the region’s population growth, and the physical and political constraints restricting new supply, we forecast that the upward pricing trend of the past few years will continue for some time to come.

(Richard Chilcott, a Principal of Avison Young, and Jonathan Yuan, a Vice President, are based in the company’s Toronto office. Both specialize in investment property brokerage and are members of the company’s Canadian capital markets group.)

Wednesday, August 22, 2018

Evolving workplace trends force office occupiers and owners to adjust traditional strategies

By Mark E. Rose (Toronto)

New approaches from technology companies and co-working providers across North America and Europe are challenging occupiers’ and landlords’ office-space accommodation strategies, forcing players in more established sectors to adjust how they think about the size, physical form and operational function of their premises. This transformation continues to encourage new development, which is racing to keep up with demand in some markets and being bolstered by a young, educated workforce gravitating to urban centres.

These are some of the key trends noted in Avison Young’s Mid-Year 2018 North America and Europe Office Market Report . The report covers the office markets in 67 metropolitan regions in Canada, the U.S., Mexico, the United Kingdom, Germany and Romania.

Against a backdrop of economic, geopolitical and financial volatility, the commercial property markets – for the most part – are functioning under relatively sound fundamentals. Nowhere are we seeing more profound changes than in the office sector – especially in urban areas of major metropolitan markets across the six countries covered in our annual review. The impact can be seen on city skylines, which are changing rapidly as new construction picks up pace, driven by insatiable tenant demand from organizations adjusting their workplace strategies to a growing millennial workforce and their adaptability to innovative technologies.

At the same time, sectors that have historically accounted for a significant amount of demand for office space are now being both augmented and squeezed by ever-expanding technology and co-working industries. This phenomenon is being seen across national boundaries, particularly in markets with dense and growing urban populations.

Of the 67 office markets tracked by Avison Young in North America and Europe, which comprise more than 6 billion square feet, market-wide vacancy rates declined in 38 markets, remained unchanged in seven, and increased in 22 markets as almost 74 million square feet (msf) was absorbed on an annualized basis.

Construction cranes remained prominent fixtures across many skylines as nearly 74 msf of office space was completed during the 12-month period, while another 138 msf was under construction at mid-year 2018 – with 50% of the space preleased.

It’s great to see so much confidence on the part of developers as they respond to the supply-demand imbalance in many markets. As always in this industry, the inherent risk is that circumstances could change, resulting in an oversupply of product at the time of delivery. In many cases, this scenario is the result of external economic and geopolitical factors. This time around, however, the new influences of disruptive technologies and increasing co-working space availability are also affecting how and where people work, potentially impacting the office sector from within – and challenging conventional wisdom.

Generally sound office market fundamentals are being threatened on the North American front by ongoing NAFTA talks. In Europe, the looming Brexit deadline continues to dominate the headlines in the U.K., while in Germany, strong leasing activity continues to drive vacancy rates downward in all Avison Young markets. In Bucharest, Romania, development continues in response to demand.

(Mark Rose is chair and CEO of Avison Young)

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