Expert: Troublesome Excess Office Space on the Horizon

Commercial real estate brokerage giant Cushman & Wakefield’s global chief economist, Kevin Thorpe, has warned that an oversupply of office space is likely and that such a glut could become scary for a market that has only recently begun to recover from the economic downturn of nearly a decade ago. As the world’s economies rebound, developers have embarked on a construction spree that will create a large amount of office space—700 million square feet is currently under construction worldwide—and experts are concerned about an oversupply.

“This massive wave of supply is absolutely going to create pain in the world’s office sector,” Thorpe said at the National Association of Real Estate Editors conference in Denver. The most aggressive development is occurring in China, but some U.S. markets also are in danger of a glut. Brooklyn, New York; Austin, Texas; San Francisco; Nashville, Tennessee; and Seattle are most at risk of office overbuilding.

Office owners face a number of challenges: With more employees working remotely, companies are using less space per employee, and U.S. job growth has been so strong in recent years that the labor market is approaching an inevitable plateau. “We are nearing full employment,” Thorpe said. “Job growth is slowing, and therefore there is going to be less demand for real estate space going forward.”