As the world’s economies rebound, developers have embarked on a construction spree that will create a “scary” amount of office space, says Kevin Thorpe, global chief economist at commercial real estate brokerage Cushman & Wakefield.
Some 700 million square feet of office space is under construction worldwide, and Thorpe fears an oversupply.
“This massive wave of supply is absolutely going to create pain in the world’s office sector,” Thorpe said Thursday at the National Association of Real Estate Editors’ conference in Denver.
The most aggressive development is occurring in China, Thorpe said, but some US markets also are in danger of a glut. He pointed to Brooklyn, New York; Austin, Texas; San Francisco, Nashville, Tennessee; and Seattle as the areas most at risk of office overbuilding.
Office owners face a number of headwinds, Thorpe said. With more employees working remotely, companies are using less space per employee. What’s more, US 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.”
Overall, Thorpe sees continued expansion for the US and world economies in the coming years. Consumer confidence is soaring in the United States and Europe, and trillions of dollars in stock wealth have been created since November.
Thorpe said the next recession is likely to be a mild one. In fact, it’s possible that the dip in the global economy after last year’s Brexit vote qualified as a mild recession.
“Maybe we have reset into a new expansionary cycle,” Thorpe said.
Meanwhile, the tight financial regulations imposed after the Great Recession mean banks have robust balance sheets.
“The US financial system is about as solid as I’ve ever seen,” Thorpe said.